OSFI maintains bank capital buffer

Despite rising economic and financial stresses, the Office of the Superintendent of Financial Institutions (OSFI) is keeping the capital buffer requirements on the Big Six banks unchanged.

The federal financial regulator announced that it will keep the capital buffer for the domestic systemically-important banks at 3.5% of total risk-weighted assets, leaving the common equity Tier 1 ratio requirement at 11.5%.

Commenting on the decision, Peter Routledge, OSFI’s superintendent of financial institutions, noted that while systemic risks remain elevated, they haven’t worsened since its last decision on the buffer in June.

While household debt levels are high and interest rates are elevated, “there are some positive signs including improvements in the household debt-to-income ratio and in the falling rate of inflation,” he said.

The banks also face heightened risks from commercial real estate exposures, and “intensifying geopolitical conflicts have also exacerbated external vulnerabilities, and further escalation could impact global growth and markets,” he noted.

At the same time, Routledge said that OSFI believes that the current buffer represents “adequate insurance against a severe but plausible deterioration in financial conditions,” and that the banks all have Tier 1 ratios of over 12%, indicating their “prudent approach to capital management.”

He also said the last 18 months were a good opportunity to raise the domestic stability buffer because earnings were strong: “We were buying insurance at a very cheap price.”

“If vulnerabilities intensify from today’s levels, OSFI could raise the [buffer] to a level no higher than the top of the current range of 0% to 4%,” he noted.

With files from the Canadian Press

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.