Domestic Stability Buffer
What is the Domestic Stability Buffer and why does it matter?
The Domestic Stability Buffer (DSB) is a key tool used by the Office of the Superintendent of Financial Institutions (OSFI) to help keep Canada’s financial system strong and stable. It provides an added layer of resilience for Canada’s six largest banks— helping them maintain the flexibility to continue lending and supporting Canadians as economic conditions evolve.
How the buffer works
The DSB is a percentage of total risk-weighted assets that must be held as extra capital. As of mid-2025, the buffer is set at 3.5%. OSFI reviews the buffer level twice a year, in June and December, but can change it at any time if needed. For example, during the COVID-19 pandemic, OSFI lowered the buffer to help banks keep lending when the economy was struggling.
Why it’s important
The DSB helps banks absorb losses while continuing to lend and support economic activity. This is crucial because when banks maintain the ability to lend, it supports households, businesses, and overall confidence in the financial system.
How OSFI decides the buffer level
OSFI looks at a wide range of indicators to decide how high or low the buffer should be. These include:
- Household and corporate debt levels
- Housing market trends
- Global risks such as geopolitical or economic uncertainty
- Bank performance and profitability
OSFI may adjust the buffer, either up or down, as part of its regular, forward-looking approach to capital regulation. These adjustments ensure the buffer remains appropriate for the evolving risk environment and continues to support the flow of credit to Canadians.
In addition to quantitative indicators, OSFI applies supervisory judgment informed by qualitative assessments and expert analysis. This includes stress testing and scenario analysis to evaluate how adverse conditions could impact the financial system. These tools help OSFI gauge the resilience of banks and determine whether additional capital is needed to safeguard stability.
In summary
The Domestic Stability Buffer is a proactive measure that helps Canada’s largest banks stay resilient. By maintaining appropriate levels of capital as conditions evolve, OSFI ensures that banks can continue to support the Canadian economy in all types of environments.