Superintendent Peter Routledge participates in a fireside chat at the 2025 Scotiabank Financials Summit

Moderator:

Looking ahead to the next 3 to 5 years, what are OSFI's top priorities for the banks and life insurance companies? And are there any more pressing initiatives in the shorter term that are top of mind?

Superintendent Peter Routledge:

• Globally, the world seems to be going through a pretty significant change in the geopolitical environment. However, the Canadian financial system today is as resilient as it has ever been. Over the last 15 years, OSFI has built enduring resilience into Canada's financial system. The Canadian financial sector is very well equipped to deal with the uncertainty in the broader geopolitical environment, and I think the financial system in Canada will be an asset as the country adapts to this new environment.
• Over the next 3–5 years, OSFI's focus is on continuous improvements to our supervisory approach leveraging data and technology, strengthening the accountability of boards and senior management of financial institutions. We will continue to address integrity and security risks such as money laundering, fraud, cyber-attacks and increasing reliance on third-party service providers, all while ensuring capital and liquidity standards remain robust.
• Last month, I reaffirmed OSFI's commitment to regulatory efficiency: pausing or adjusting requirements when appropriate, such as with the Basel III output floor, and streamlining expectations in line with the federal Red Tape Reduction initiative—without compromising safeguards.
• OSFI established a discipline of continuously refining our regulatory guidelines and advisories, looking for opportunities to remove unnecessary burden. It will be ongoing, as we continuously enhance our risk response, clarify our regulatory expectations, and improve the overall efficiency of our oversight.

Moderator:

What is your assessment of the current macroeconomic environment considering tariff risks and how do you feel your regulated entities are prepared with respect to any potential fallout (i.e. from a weaker economy)?

Superintendent Peter Routledge:

• The United States-Mexico-Canada Agreement, which is the trade agreement between the 3 North American nations, is respected in every country, and trade continues to flow, not tariff-free, but the tariff levels across North America, particularly Canada and the United States, are on balance lower than elsewhere, and that is a positive outcome.
• As for institutional preparedness, Canada has a financial system that is as resilient as it has ever been. Canada's banks and life insurance companies are entering this period with strong capital and liquidity buffers, as well as improved risk governance built up since the global financial crisis and reinforced during the pandemic. A strong, stable financial system is a cornerstone of Canada's economic strength.
• The economy has shown resilience. Earnings are up, credit losses are quite manageable. Six systemically important banks have a weighted average CET1 ratio of 13.7%. The floor we've established for those players is 11.5%. That's 220 basis points of capital cushion. That equates to $60 billion of capital above our minimum level. We have similar resilience in the insurance system, so I'm quite optimistic about the financial system's ability to enable the country to transition.
• We remain vigilant through active risk monitoring and early intervention tools. Our approach ensures institutions can adapt if conditions worsen, while continuing to support credit availability and financial resilience.

Moderator:

Any updated thoughts on the Canadian housing market? It's always topical as it obviously is a very important part of Canada's economy.

Superintendent Peter Routledge:

• In 2012, OSFI put in place principles for residential mortgage underwriting, and updated them a couple times, but they're just good housekeeping principles for sound real estate secured lending underwriting, Guideline B-20.
• We're near all-time lows for mortgage delinquencies, and for credit losses measured against loans.
• OSFI has helped to transform underwriting of residential real estate, such that there's very good income coverage for mortgage payments. Again, there is a lot of resilience in the housing market as well. If there is a more serious downdraft in the housing market, there's ample capital in the system to offset and absorb some of that shock and make it a manageable situation for households and financial institutions.

Moderator:

Any pockets of concern (condo overbuilding, investor involvement in that part of the market, the economic impact of a prolonged slowdown)?

Superintendent Peter Routledge:

• We've been talking about commercial real estate risk in our Annual Risk Outlook for a number of years now.
• Housing continues to be a key vulnerability in Canada's economy. Elevated household debt and concentrated activity in certain markets—like investor-driven condos—mean a downturn could spill over into the wider financial system. We are seeing pockets of stress in certain segments and regions, like the preconstruction condo market in the Greater Toronto and Vancouver area.
• Capitalization of the banking system is able to deal with challenges in the condo market. We're reasonably confident that the resilience in the system is sufficient to what we're facing.
• Having a bit more inventory is not a bad thing for younger Canadians who want to get into the real estate market.

Moderator:

DSB, I've always appreciated that commercial decision the banks have made. In reality, if the DSB was to decline, and let's just say for argument's sake, you dropped it down to 2%, and now the CET1 minimum is 10.0, would you not be concerned if a bank was running at 10.4 knowing that at any given point in time, volatility, risk, can come back into the market and kind of catch them off guard, and then suddenly they have to come to market in maybe a not so good environment and have to raise capital just to get back above your minimum, would you not look at that as a bit of a risk?

Superintendent Peter Routledge:

• The buffer isn't about sending a signal—it's about making sure capital is there when risks materialize. It's designed as a safeguard. It requires banks to hold extra capital during periods of elevated vulnerability so they can continue to lend and absorb losses when conditions deteriorate.
• The buffer is meant to be a resilience buffer, a form of insurance against very, very significant downside scenarios. That's how we got to 3.5 %, that's the insurance we need.
• Banks generally maintain Common Equity Tier 1 (CET1) ratios above the supervisory targets. Banks use their capital planning processes to set their own internal capital levels and buffers above supervisory targets.
• If an institution were to fall below 8%, in our capital adequacy requirement document there are automatic capital conservation measures that the institution would be obliged to take.
• Adjustments to the DSB—whether up or down—are meant to maintain resilience, while also ensuring banks can continue to play their role in supporting households and businesses in all economic conditions.

Moderator:

Obviously the NATO spending target that Canada is looking to get to, and just historically the banks being a little bit hesitant to lend in that space, defence spending.

Superintendent Peter Routledge:

• From 1990 to 2022, we were living in a world that didn't require that level of defence investing. The taxonomy of risk-weights and the different risk-weights for different asset classes and that is a factor when banks make decisions about lending. And on that dimension, it is not unreasonable to presume that defence lending, which may not have been high priority for institutions in the past, could have been influenced by that.
• Now we're in a different world and the Government has made a very clear commitment to defence spending.
• OSFI can be helpful in an incremental way and we're open to doing that.