OTTAWA, ON, June 23, 2020 /CNW/ - Today the Office of the Superintendent of Financial Institutions (OSFI) announced that the Domestic Stability Buffer (DSB) will remain at 1.00% of total risk-weighted assets, unchanged from the level set on March 13, 2020 as part of OSFI's response to COVID-19.
This decision reflects OSFI's assessment that the current DSB level remains effective in supporting the resilience of the Canadian banking system and the overall economy. The DSB requires Canada's six largest banks to set aside a portion of their capital during good times so they can draw down on that reserve in times of economic stress.
The DSB was lowered by 1.25% on March 13, providing banks in excess of $300 billion of additional lending capacity. This action was taken to support banks' ability to continue to provide loans and services to Canadians. OSFI expects banks to continue to draw on this capacity to support Canadian businesses and households.
Canada's largest banks entered this downturn from a position of strength and both the quantity and quality of their capital remains strong. Fiscal and monetary policy responses have helped to cushion the impact of the pandemic. In this context, the March DSB release and regulatory policy adjustments implemented by OSFI are also promoting stability and resilience in the financial system.
At the same time, vulnerabilities in the financial system remain elevated and the pace of economic recovery is difficult to predict. The pandemic has added pressure on highly indebted households and businesses while asset imbalances remain elevated. Lower global growth also presents the possibility that some external risks could spill over into the Canadian financial system.
OSFI will continue to monitor economic and financial conditions, vulnerabilities and signs of risks to the banking system, and the impact of COVID-19 policy responses. If conditions warrant, OSFI is prepared to release the DSB further.
"The recent DSB release is working as intended, acting as a stabilizing tool to support banks' ability to absorb losses and to continue lending to Canadians. This is a sign of a well-functioning and effective capital regime."— Jamey Hubbs, Assistant Superintendent, Deposit-Taking Supervision Sector
- OSFI reviews and sets the DSB level every June and December, but OSFI can lower the buffer and allow the release of reserved capital whenever needed, such as this past March.
- OSFI can authorize the release of this capital buffer during challenging times so that banks can cover losses and continue to lend to businesses and households.
- When OSFI lowered the DSB on March 13, it committed that any increases to the buffer will not take effect for at least 18 months.
- June 2020 Letter to industry
- March 2020 DSB release announcement
- Domestic Stability Buffer backgrounder
- Domestic Stability Buffer announcements
- OSFI COVID-19 updates
The Office of the Superintendent of Financial Institutions (OSFI) is an independent agency of the Government of Canada, established in 1987, to protect depositors, policyholders, financial institution creditors and pension plan members, while allowing financial institutions to compete and take reasonable risks.
SOURCE Office of the Superintendent of Financial Institutions
For further information: Media Contact: OSFI - Public Affairs, [email protected], 343-550-9373