Federal banking regulator OSFI holds domestic stability buffer at 2.5%

The federal banking regulator is holding the domestic stability buffer at 2.5% as it says the economy continues its recovery and Canada’s largest banks remain robust.

The Office of the Superintendent of Financial Institutions, which reviews the rate twice a year, announced in June it would increase it to its current level effective Oct. 31.

In making its decision, the regulator says systemic vulnerabilities such as household indebtedness and housing-related asset imbalances remain elevated.

The buffer, which was reduced to 1% at the start of the pandemic, requires Canada’s largest domestic, systemically important banks to build up a reserve when times are good that can be called on when needed.

The decision to keep the rate on hold follows a decision last month by the regulator to lift restrictions that prevented federally regulated banks and insurance companies from increasing dividends, buying back shares and increasing executive compensation.

The prohibitions were put in place at the start of the pandemic in response to fears about the economic turndown and the possibility of large numbers of people defaulting on loans.

The Canadian Press

The Canadian Press is a national news agency headquartered in Toronto and founded in 1917.