OSFI maintains amount of capital large lenders must hold at 2.5%

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The Office of the Superintendent of Financial Institutions (OSFI) maintains the capital cushion that the country’s major banks must hold to better protect themselves against risk at 2.5%.

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The cushion, which is a political tool aimed at ensuring the stability of the country’s financial system, was set at this level in June and came into effect at the end of October.

OSFI said in a statement that it had assessed market vulnerabilities such as household indebtedness and found that housing asset imbalances remain high. The organization added that the short-term risks are stable and that the country’s largest banks continue to be in a strong financial position amid the economic recovery.

“Today’s decision to maintain the national stability buffer at 2.50% reflects OSFI’s comprehensive analysis of short-term risks and long-term vulnerabilities in the Canadian financial sector as well as the economy in general. Jamey Hubbs, Deputy Superintendent of Deposits. taking the supervision sector to OSFI, said in a statement. “An ORD at this level is a prudent and appropriate measure given the current environment.”

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Canadians took on significantly more housing-related debt during the pandemic, with the debt-to-income ratio rising to 177.2% in the third quarter, according to an RBC Economics report. The report noted that this level is lower than pre-pandemic debt levels largely due to low interest rates and government support for a pandemic that increases income.

The cushion is part of an overall supervisory strategy to ensure that banks continue to resist market vulnerabilities. The DSB is between zero and 2.5 per cent and is revised every June and December. OSFI may also make changes to the DSB at other times if the circumstances so require.

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OSFI has said it will continue to monitor Canada’s economic and financial conditions to assess the risks facing the country’s banking system and may take action if warranted.

OSFI lifted restrictions on dividend increases and share buybacks on November 4, prompting Canada’s largest banks to all raise dividends by at least 10% in their latest earnings reports.

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