Office of the Superintendent of Financial Institutions
The Domestic Stability Buffer (DSB) allows Canada’s largest banks to easily adjust to key vulnerabilities and system-wide risks. It helps foster stability and public confidence in the Canadian financial system.
3.50% of total risk-weighted assetseffective November 1, 2023
June 20, 2023
The DSB is like a rainy-day fund. It's a capital buffer that the banks are required to set aside to be able to cover losses during financial uncertainties.
The DSB applies only to Canada’s six largest banks, known as Domestic Systemically Important Banks (D-SIBs):
If these banks fail, it can have far-reaching consequences for our domestic economy and often for the global financial system.
OSFI sets the DSB level in consultation with OSFI's federal financial regulatory partners.
The buffer level is set twice a year, in June and December. But it can change any time when needed. For example, on March 13, 2020, OSFI lowered the DSB from 2.25% to 1% in response to the COVID-19 pandemic.
The DSB level is set based on financial trends and a range of risks and key vulnerabilities. The types of vulnerabilities include:
High levels of consumer debt can make it hard for households to manage financial stress. This can lead to consumers reducing spending and cause a recession. A recession, in turn, can expose banks to loan defaults and losses.
Sharp increases in the value or price of assets such as houses can make the economy vulnerable should those values or prices drop. This can trigger reduced spending and investment and reduce the value of banks’ loan collateral.
High levels of institutional, or corporate, debt can reduce the ability of businesses and governments to withstand periods of economic stress. If those businesses and governments reduce spending and investment as a result, it can bring prices down and cause a recession. A recession, in turn, can expose banks to loan defaults and losses.
External systematic vulnerabilities are global developments such as pandemics, conflict or political unrest that make the Canadian economy and the D-SIBs more vulnerable to an economic downturn. This includes measurable vulnerabilities as well as vulnerabilities that are more difficult to measure but could contribute to global macro-economic risk.
OSFI reviews the DSB design and range periodically to ensure the buffer:
OSFI reviewed the DSB on December 8, 2022. It increased the upper limit from 2.5% to 4%. The new range will ensure that: