OSFI maintains Domestic Stability Buffer at 3.5%
News release - Ottawa -
Today, the Office of the Superintendent of Financial Institutions (OSFI) announced that it will maintain the Domestic Stability Buffer (DSB) at 3.5% of total risk-weighted assets, a level announced in June 2023 and in effect since November 1, 2023. Accordingly, OSFI expects all systemically important banks to target a Common Equity Tier 1 ratio of at least 11.5% of risk-weighted assets.
OSFI elected to hold the DSB at its current level because Canada’s six largest, or systemically important, banks have each reached a level of reserve capital that is sufficient to absorb losses if current vulnerabilities materialize into actual losses.
Through the DSB, OSFI requires systemically important banks to set aside a capital buffer during periods of growth and stability that may then be used to absorb losses in times of economic and financial stress. By using capital buffers in challenging times, Canada’s systemically important banks will have the capacity to continue lending to households and businesses.
OSFI will continue to closely monitor financial system developments in Canada and abroad. If financial system vulnerabilities materialize into actual losses, OSFI could lower the DSB. If vulnerabilities intensify from today’s levels, OSFI could raise the DSB to a level no higher than the top of the current range of 0% to 4%.
More information about OSFI’s decision can be found in the Decision Summary note.
Information on the process can be found in the Design Framework.
“Over the last year, OSFI has increased the DSB by 100 basis points, adding to the robust capital reserve for Canada’s six largest, or systemically important, banks. We believe this action has bolstered the banking system’s capacity to absorb losses if current vulnerabilities materialize into actual losses.”
- Peter Routledge, Superintendent of Financial Institutions
Quick facts
- The DSB applies to Canada’s six largest banks, known as domestic systemically important banks or D-SIBs.
- The DSB gives the D-SIBs more capacity to absorb losses in times of stress. This contributes to the long-term resilience of Canada’s financial system.
- The DSB is built up during periods of growth and stability so that it can be released, or lowered, during challenging times, allowing the D-SIBs to continue to lend to businesses and households.
- OSFI reviews and sets the DSB level every June and December but can make changes at other times as circumstances warrant.
- OSFI’s decision recognizes the prudent approach to capital management taken by the Boards of Directors of Canada’s systemically important banks, all of which have produced CET1 ratios exceeding 12%.