Canada’s biggest banks will be required to set aside more money to cover possible losses as the country’s banking watchdog points to growing fears of an economic downturn.
The Office of the Superintendent of Financial Institutions (OSFI), which regulates Canada’s biggest lenders, announced Tuesday it would raise the domestic stability buffer (DSB) to 3.5 per cent, up from 3.0 per cent. The change will take effect Nov. 1, 2023.
The DSB dictates how much of a bank’s reserve funds must be set aside to cover possible losses; OSFI describes it as a “rainy-day fund” in documents on its website. It applies to Canada’s six biggest banks.
The DSB is one part of an overall capital requirement that big banks must hold at all times. With the DSB hike on Tuesday, the minimum amount banks must have on-hand will rise to 11.5 per cent of their total assets; OSFI says that as of April 30, banks’ actual levels were 13.1 per cent.
This marks the second consecutive increase to the key buffer, which also rose by 50 basis points at OSFI’s December 2022 announcement.
OSFI head Peter Routledge said in a press conference Tuesday morning that “financial system vulnerabilities remain elevated and in some cases have continued to increase.”
“OSFI is buying more insurance for financial stability,” he said.
More to come.
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