OSFI reinforces resilience of Canada’s financial system: Sets Domestic Stability Buffer at 3.5%
News release - Ottawa -
Today, the Office of the Superintendent of Financial Institutions (OSFI) raised the Domestic Stability Buffer (DSB) by 50 basis points to 3.5% of total risk-weighted assets, effective November 1, 2023.
The DSB applies to Canada’s six largest banks, known as domestic systemically important banks or D-SIBs. A higher DSB gives these institutions more capacity to respond to potential vulnerabilities and ensures more capital is available to continue lending and absorb losses in times of stress. This contributes to the long-term resilience of Canada’s financial system.
Current vulnerabilities, including high household and corporate debt levels, the rising cost of debt, and increased global uncertainty around fiscal and monetary policy, coupled with Canada’s financial sector showing strength throughout the winter and spring has presented the opportunity for OSFI to build more resiliency in the system.
OSFI will continue to closely monitor developments in Canada and abroad. Should existing vulnerabilities intensify, or new risks arise, OSFI will take action to support the resilience of regulated entities as well as help safeguard the stability of the Canadian financial system.
By raising the DSB to 3.5%, we are taking action to enhance the resilience of Canada’s largest banks against vulnerabilities. This change will help Canada maintain a resilient financial system. The DSB is a safety buffer for the banking system that can be lowered when appropriate, such as during economic downturns.
- Peter Routledge, Superintendent of Financial Institutions
- The DSB is an important tool that helps ensure the stability of Canada’s financial system and requires Canada’s largest domestic systemically important banks (D-SIBs) to build up a capital buffer as vulnerabilities grow.
- This buffer can be released, or lowered, during challenging times, allowing banks to absorb losses and continue to lend to businesses and households.
- When appropriate, such as during economic downturns, as bank loan losses rise and bank capital ratios fall, OSFI can reduce the DSB partially or to zero, and will be comfortable moving capital expectations towards an 8% adequately capitalized floor.
- OSFI reviews and sets the DSB level every June and December but can make changes at other times as circumstances warrant.