Opening Remarks by Superintendent Peter Routledge at the June 2023 level-setting announcement for the Domestic Stability Buffer

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Welcome to our June 2023 level-setting announcement for the Domestic Stability Buffer, or DSB.

I am joined by Assistant Superintendent and Chief Strategy and Risk Officer (CSRO), Angie Radiskovic.

I am speaking to you from Ottawa on land that has served, for time immemorial, as a meeting place amongst Indigenous peoples, including the Algonquin Anishinabeg people. I am grateful to be present in this territory.

The DSB is a capital reserve that our systemically important and largest banks must set aside to cover potential losses during periods of uncertainty. It is built up during times of economic stability and released during times of stress.

Today, we announce that OSFI will increase the DSB by 50 basis points to 3.5% of total risk-weighted assets. This change will be effective November 1, 2023. This action will increase the supervisory expectation on OSFI’s key capital ratio, the Common Equity Tier 1 ratio, to 11.5% from 11.0%. All systemically important banks already exceed this expectation.

To set the level, OSFI looks at a wide range of vulnerability and risk indicators, along with recent stress testing and scenario analysis.

Today’s decision reflects our assessment that financial system vulnerabilities remain elevated and in some cases have continued to increase.

As you know, we are in a period of rising interest rates and home prices have begun to climb again. Households and corporates remain highly leveraged, making them more vulnerable to economic shocks.

At the same time, the Canadian financial sector has shown resiliency throughout the winter and spring and Canada’s banks have shown signs of strength.

We need to leverage this window of opportunity to take further action to bolster the resilience of our financial system. 

In other words, OSFI is buying more insurance for financial stability at an opportune time.

Today’s DSB rate adjustment is another example of how OSFI supports resiliency and builds public confidence in our financial system.

Should risks materialize, we will not hesitate to take action to support financial system resilience by lowering the DSB. Canadians can be proud and confident in the safety and strength of our financial system.

Thank you.