Peter Routledge, Superintendent, gives OSFI Domestic Stability Buffer Announcement – June 2025

Welcome to our June 2025 rate-setting announcement for the Domestic Stability Buffer, or DSB.

I would like to acknowledge that I am speaking to you from Ottawa on land that has long served as a meeting place amongst Indigenous peoples, including the Algonquin Anishinaabeg people. I am grateful to be present in this territory.

The Domestic Stability Buffer applies to Canada’s six largest, or systemically important, banks. It requires these banks to set aside capital so that it is available for use during periods of stress. It is a usable buffer, intended to be built up during periods of growth and released as risks materialize.

OSFI has decided to maintain the Domestic Stability Buffer at its current level of 3.5%. Our next announcement will occur in December 2025.

Today’s decision recognizes that financial system vulnerabilities remain elevated yet stable. The uncertainty caused by rising trade disputes has not manifested itself in indicators of financial system stress. And we at OSFI remain alert and attentive to financial system stress, with a willingness to act with urgency when necessary.

Fortunately, Canada’s systemically important banks have entered this period of uncertainty from a position of strength thanks to the strong capital buffers they have fortified in recent years.

Vulnerabilities and Risks

Since our last announcement in December, some vulnerabilities have eased modestly. For example, Canadian household indebtedness has lessened, although it remains elevated by historic standards.

Many Canadian homeowners will renew their mortgages over the next 18 months. Falling mortgage rates will moderate the potential financial stress from renewals, if rates remain at today’s levels. Nevertheless, we expect that borrowers will renew at higher mortgage rates than prevailed in the 2020-21 period, a fact that will intensify financial pressure on those carrying higher debt levels relative to income.

Though stable, commercial real estate vulnerabilities remain elevated as collateral valuations remain under pressure.

And we continue to assess potential impacts that a global trade conflict could have on the Canadian economy, with a special focus on spillovers to the financial system.

We remain ready to respond should conditions change.

Canadian SIBs are well capitalized

Since the global financial crisis, OSFI has worked to build up resilience in Canada’s financial system. This work has included increasing the DSB to 3.5%, just below its upper limit of 4%.

We also observe that Canada’s largest banks’ have remained profitable despite the challenges in the risk environment. As of April 30, 2025, their CET1 ratios were 13.6% on average, up almost 30 bps over the past 6 months and are now more than 200 bps above the DSB on average.

Conditions for lowering the DSB

Using capital buffers is a sign of a healthy financial system.

At times, the release of the DSB can come after a sudden and severe shock that impacts the financial system. Recall, OSFI lowered the DSB by 125 basis points in March 2020, in response to the COVID-19 pandemic. And in other situations, OSFI could adjust the DSB in response to less severe materialization of risk.

In either case, lowering the DSB enables banks to absorb both losses and intensifying balance sheet risk while maintaining the critical services they provide to the nation’s economy.

Given the unusual degree of economic uncertainty at present, OSFI stands ready to lower our capital expectations of Canada’s systemically important banks as financial conditions warrant.

Doing so would signal the exceptional banking system resilience built up since the global financial crisis of 2008-09. And any future decision by OSFI to lower the DSB would be a signal of the underlying strengths of the banking system; strengths necessary to manage through periods of economic stress.

Indeed, the Domestic Stability Buffer represents the capital reserves, at Canada’s systemically important banks, that we believe are necessary to absorb stress scenarios if risks crystallize.

Thank you, I will now turn it over to Christina.