Domestic Stability Buffer

The Domestic Stability Buffer (DSB) allows Canada’s largest banks to easily adjust to key vulnerabilities and system-wide risks. It helps foster stability and public confidence in the Canadian financial system.

Domestic Stability Buffer

will be set at
3.00%
of total risk-weighted assets
as of February 1, 2023

December 8, 2022

What is the Domestic Stability Buffer

The DSB is like a rainy-day fund. It's a capital buffer that the banks are required to set aside to be able to cover losses during financial uncertainties.

The DSB applies only to Canada’s six largest banks, known as Domestic Systemically Important Banks (D-SIBs):

Bank of Montreal
Bank of Nova Scotia
Canadian Imperial Bank of Commerce
National Bank of Canada
Royal Bank of Canada
Toronto-Dominion Bank

If these banks fail, it can have far-reaching consequences for our domestic economy and often for the global financial system.

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Big Banks Capital Requirements

0% to 4.5% - Minimum Common Equity Tier 1 Capital Requirement
4.5% to 7% - Capital Conservation Buffer
7% to 8% - Surcharge
8% to 11% Domestic Stability Buffer - 3% effective February 1, 2023
above 11% - Bank's actual levels were 13.6% as of October 31, 2022.

How the Domestic Stability Buffer is set

OSFI sets the DSB level in consultation with OSFI's federal financial regulatory partners.

The buffer level is set twice a year, in June and December. But it can change any time when needed. For example, on March 13, 2022, OSFI lowered the DSB from 2.25% to 1% in response to the COVID-19 pandemic.

The DSB level is set based on financial trends and a range of risks and key vulnerabilities. The types of vulnerabilities include:

Canadian household indebtedness: High levels of consumer debt can make it hard for households to manage financial stress. This can lead to consumers reducing spending and cause a recession. A recession, in turn, can expose banks to loan defaults and losses.
Canadian asset imbalances: Sharp increases in the value or price of assets such as houses can make the economy vulnerable should those values or prices drop. This can trigger reduced spending and investment and reduce the value of banks’ loan collateral.
Canadian institutional indebtedness: High levels of institutional, or corporate, debt can reduce the ability of businesses and governments to withstand periods of economic stress. If those businesses and governments reduce spending and investment as a result, it can bring prices down and cause a recession. A recession, in turn, can expose banks to loan defaults and losses.
External systemic vulnerabilities: External systematic vulnerabilities are global developments such as pandemics, conflict or political unrest that make the Canadian economy and the D-SIBs more vulnerable to an economic downturn. This includes measurable vulnerabilities as well as vulnerabilities that are more difficult to measure but could contribute to global macro-economic risk.