Superintendent Peter Routledge participates in a fireside chat at Bank of America Expert Insights Series

Check against delivery

Moderator:

How would you assess the state of the Canadian economy? What are the 1 to 2 key downside risks that keep you up at night?

Superintendent Peter Routledge:

• Overall, I’d say the Canadian economy is holding up reasonably well. Markets have stabilized compared with last year, and households and businesses have shown resilience even as growth has slowed and unemployment has risen. But we’re operating in a more complicated and uncertain environment than before due to recent instability, including evolving conflicts internationally.
• OSFI's mandate is to provide guidance so institutions remain resilient. This is now more relevant than ever before in the face of heightened geopolitical risk and evolving integrity and security risk.
• OSFI must respond to geopolitical uncertainty and the way global tensions can shift economic conditions, trade flows, funding markets, and business confidence. We’ve worked hard to build up a resilient system and it shows. In recent events, markets have been pricing in geopolitical volatility and, so far, Canada has been able to absorb it.
• History shows that geopolitical shocks often correlate with increases in cyber incidents. This is a risk that keeps me up at night. Geopolitical instability, fast-moving technologies, and third-party reliance makes financial institutions vulnerable to cyber-attacks, state-linked interference, and integrity-related risks.
• These threats are not hypothetical, and they aim to disrupt trust and financial stability. Indeed, these integrity and security risks can expose banks and insurers to financial losses and reputational damage. We continue to monitor cyber vulnerabilities closely and push institutions to remain vigilant.

Moderator:

Canada’s financial resilience is widely regarded as a strategic advantage. What’s OSFIs perspective on how resilience can support economic growth rather than being seen as a constraint?

Superintendent Peter Routledge:

• A resilient financial system is an enabler of economic adaptation, not an obstacle to it. Canada will face shifts in trade, technology, demographics, and competitiveness over the next several years. A well-calibrated capital framework helps ensure the system's long-term resilience.
• We're beginning to test that calibration in a careful, measured way. In the draft CAR revisions released last fall, we proposed lowering the risk weight on some business loans from 85 percent to 75 percent for small and medium-sized businesses. That kind of targeted recalibration does not put the system at risk but can release capacity for banks to extend credit. Similar opportunities may exist in internal-ratings-based approaches where the data justifies it.
• Risk weights work when they reflect the underlying risk of exposure. If the risk is priced correctly, banks have the confidence and flexibility to lend into productive parts of the economy without compromising their safety and soundness. Getting that calibration right is essential for long-term prosperity.

Moderator:

Growth in NBFI lending (particularly private credit) has been significant. How do you assess the potential for contagion risk (for banks and insurers) if we end up seeing emergence of increased credit issues in the private credit space? What is the level of visibility that the OSFI has on these loans?

Superintendent Peter Routledge:

• The NBFI sector has grown significantly across a broad range of markets. These entities can play a positive role by fostering competition, enabling hedging, aiding in price discovery and offering market stabilization in times of stress.
• However, NBFIs often engage in maturity, liquidity or credit transformation by taking on high amounts of financial or synthetic leverage. Their lack of transparency, procyclical behaviour, and growing interconnectedness with the financial system can present significant systemic risks and threaten financial stability.
• NBFI is a broad category that includes a diverse set of financial entities, which are often interconnected with our regulated banks, insurers, and pension plans. Regulators internationally are concerned about the transmission of risk from NBFIs to the broader financial system. Transmission of risk could occur both through direct exposure and indirectly through market shocks caused by NBFI stress.
• While our supervisory mandate is focused on federally regulated financial institutions, we are directing supervisory efforts to assess developments in NBFIs that could negatively impact financial stability. We will strengthen our research and analytics to better understand the complex relationships and market dependencies between NBFIs and the institutions we regulate. We are conducting supervisory reviews on exposure to NBFIs, risk rating approaches, and governance processes.
• Through our Credit Risk Management (CRM) Guideline consultation, we are aligning principles from the Financial Stability Board and Basel Committee for Banking Supervision to help institutions manage the credit risks related to NBFIs and other counterparties. Our goal is to ensure that institutions monitor, understand, and report their NBFI exposures and risks in a coherent and comprehensive way.

Moderator:

OSFI’s modernized approvals framework will launch in June 2026 with the goal to create efficiencies. Can you talk to us how this will be different vs. the prior approach to review banking applications? Do you think the prior approach had stifled innovation?

Superintendent Peter Routledge:

• As the financial landscape evolves, OSFI sees the new streamlined framework as part of a deliberate modernization strategy. Innovation is already happening in financial services, and we’d rather see that innovation occur within the regulated perimeter and aligned with prudential standards. We know that we have a part to play in enabling that outcome and we have to nail that outcome within prudential standards. As such, we have to meet them halfway.
• OSFI’s streamlined approvals framework for eligible applicants (credit unions and fintechs) aims to make the path to a federal license quicker, clearer, and more predictable, while still maintaining strong oversight. It is part of a broader modernization effort responding to new business models and technologies.
• Building on an already strong prudential foundation, the streamlined approvals framework is designed to enhance clarity, remove avoidable barriers, and better accommodate emerging technologies and business models. The result is a more agile, innovation‑ready environment that reflects the evolving nature of Canada’s financial sector.
• Key differences include:
  • Streamlined review steps: Overall approval times are expected to be shorter. Right-sized, risk-based prudential reviews will take place that provide a more predictable and faster path into the federally regulated financial system.
  • Greater clarity and transparency: OSFI aims to provide clearer guidance on requirements, timelines, and review steps up front, supported by transparency to help applicants track their progress through the process.
  • Modernized, risk-based posture: OSFI is shifting toward a more calibrated approach that focuses supervisory attention where it matters most, enabling efficiency without compromising prudential outcomes.

Moderator:

BIS and IMF have flagged SRTs as merely recycling risk vs. truly reducing systemwide risk. The existence of these complex SRT structures is also possibly suggestive of the capital requirements being too high. Again, how do you assess this risk and what has been your recommendation to bankers?

Superintendent Peter Routledge:

• The way the question is phrased may be directionally grounded in both reports, but the ‘merely recycling risk’ rhetoric overstates the IMF and BIS conclusions. Properly structured SRTs - with capital relief commensurate to underlying actual risk transfer - are a legitimate form of securitization with both risk management and capital optimization use cases.
• The points raised by the BIS and IMF are important considerations, and we are looking at synthetic risk transfer structures. SRTs can alter the risk profile of an institution in novel ways, and raise interesting questions about lending capacity, calibration of capital treatment, rollover risk, and – yes – the potential for credit risk to recycle back into the banking system via banks financing the SRT positions of non-banks.
• It’s important to recognize that SRTs are used for more than capital optimization. They are also a risk‑transfer tool that can help banks manage industry concentrations or correlation risk while maintaining important customer relationships. That broader context is part of how we assess them.
• The key issue is substance over form. We assess whether risk is genuinely transferred, whether the structure is robust under adverse conditions, and whether capital relief reflects the true economics of the transaction. Well-structured transactions are entirely consistent with the framework; the focus is on ensuring they behave as intended in a downturn.
• We consistently remind institutions that even with risk transfer tools, they remain responsible for understanding and managing the risks they take, and for ensuring the protections they rely on are durable.

Moderator:

We are watching capital and liquidity requirements get recalibrated in the US and Europe after a 15-year stretch of ever-increasing demands on the industry following the Great Financial Crisis. You have announced several actions – pausing Basel implementation, targeted RWA relief. But start with how you would characterize the quality of bank balance sheets, capital levels?

Superintendent Peter Routledge:

• Canadian banks are well‑capitalized and have strengthened in recent years. Capital surpluses have risen and remain well above OSFI supervisory expectations, despite a challenging risk environment.
• Canadian supervisory expectations are broadly consistent with international peers. Although Canada uses a relatively large but fully usable Pillar 2 buffer, the Domestic Stability Buffer, peer jurisdictions often apply a combination of binding Pillar 1 and binding or non‑binding Pillar 2 add‑ons that create similar or more constraining capital stacks.
• Canadian banks’ capital ratios and risk weights are in line with international peer ranges. Their risk‑based ratios are around the peer median, with some differences in leverage ratios linked to Canada’s higher concentration in real‑estate‑secured lending.
• Profitability remains a strength of the Canadian banking system. Canadian SIBs report among the highest return on equity (ROE) compared to global peers, demonstrating sustained performance over multiple business and financial cycles.

Moderator:

The Domestic Stability Buffer (DSB) is a topic that often comes up with investors wondering whether there is any consideration being given at OSFI to revisit the 400bp max level and possibly returning to the prior 300bp max? The DSB sits at 3.5%. With macro uncertainty still elevated and mortgage delinquencies creeping up, what would need to change — in either direction — for OSFI to move that number?

Superintendent Peter Routledge:

• The DSB is calibrated to Canada’s risk environment. The current 0–4% range remains appropriate and continues to be informed by stress tests and other internal analysis.
• The current 3.5% setting reflects a balance between resilience and supporting economic activity. The buffer provides OSFI with flexibility to adjust if conditions materially change.
• Canada’s largest banks remain well capitalized, with average CET1 ratios of about 13.6%, well above supervisory expectations of 11.5%.
• OSFI’s approach is data-informed; we adjust the DSB only when conditions warrant, not as a response to short-term earnings or shareholder actions.
• OSFI would consider a DSB increase if systemic vulnerabilities materially intensify. We would lower the DSB if there was clear evidence that risks are materializing into financial stress, meaning the system is beginning to experience the types of conditions reflected in severe but plausible stress scenarios.

Moderator:

Mortgage delinquencies are rising while the condo market remains under stress (implication for commercial real estate). On a scale of 1-10, how worried are you about the state of the housing market today vs. a year ago and are there any actions that OSFI is contemplating? How do you see the banks positioned to handle any further stress in the market?

Superintendent Peter Routledge:

• In terms of negative economic scenarios, I worry about the cohort of borrowers who originated mortgages in 2021 to 2022 and are facing renewal with significant payment increases. In particular those with variable rate mortgages with fixed payments because their mortgage balances are higher than they were five years ago, their term is five years shorter, and the value of their home is less than what they paid for. This cohort could face significant payment increases, have loan-to-value ratios greater than 80%, total debt service ratios above 44%. Systemically that's not going to strain the system, but it will strain those households.
• The condo segment is particularly strained in Toronto and Vancouver. Market sales are at historically low levels. There are unique factors at play. The current sales rate is not sufficient to absorb the excess inventory buildup in the condo markets, which has resulted in significant price declines, with many new condos now worth less than their pre-sale purchase prices. Along with economic uncertainty in Canada because of our shifting trade environment, buyers are holding off on these purchases.
• I believe we have adequate underwriting discipline to absorb the costs that may occur from this and that the system is able to absorb the higher losses. Unless there is a real severe downturn, the banking system will operate through housing market events with sound capital.

Moderator:

You are now in the second half of your seven-year term. You have said you see the next few years as "cementing" the changes OSFI has made. What do you want your tenure to ultimately be defined by?

Superintendent Peter Routledge:

• There are two years remaining in my mandate, and I do not believe in a “lame‑duck” period; the pace of work will remain strong until the end.
• My priorities are clear. First, I want to solidify OSFI’s role as an assertive voice on the importance of prudential supervision. Second, I intend to continue strengthening Canada’s broader safety net, particularly in the insurance sector, where the absence of a CDIC‑style backstop makes the system more exposed to a major failure. Close coordination with our federal partners will be essential.
• Finally, reinforcing that strong senior leader accountability is critical as it helps institutions stay resilient, manage risk and maintain public trust. Weak suitability and accountability can pose serious non‑financial risks. Leaders who are unsuitable or unaccountable can weaken governance, harm public trust in their institutions, and affect the broader economy and financial system.
• If my tenure is to be defined by anything, I hope it is by leaving behind a stronger, more transparent, and more resilient prudential framework—one that supports confidence in Canada’s financial system for years to come.