OSFI maintains Domestic Stability Buffer at 2.50%

OTTAWA, ON, Dec. 10, 2021 /CNW/ - Today, OSFI announced that the Domestic Stability Buffer (DSB) will remain at 2.50% of total risk-weighted assets. This level was set at the last DSB announcement in June 2021, and came into effect on October 31, 2021.

Maintaining the DSB at 2.50% reflects OSFI's assessment that systemic vulnerabilities such as household indebtedness and housing-related asset imbalances remain elevated. At the same time, near-term risks are moderate and stable on balance, the economic recovery is progressing and the financial resilience of Canada's largest banks continues to be robust.

The DSB is an important policy tool that helps ensure the stability of Canada's financial system and requires Canada's largest domestic systemically important banks (D-SIBs) to build up a capital buffer as vulnerabilities grow. This buffer can then be released during challenging times, allowing banks to cover losses and continue to lend to businesses and households.

The DSB is part of a comprehensive supervisory and capital regime that influences banks' resilience to vulnerabilities. As part of OSFI's ongoing work to ensure the long-term effectiveness of this regime?and in line with our mandate to contribute to public confidence in the Canadian financial system?we plan to review the DSB's design and range.

In lifting OSFI's expectations on capital distributions on November 4, 2021, the Superintendent of Financial Institutions, Peter Routledge, underlined the importance of responsibility, prudence and sound judgement on the part of boards of directors and senior management at federally regulated financial institutions.

When contemplating decisions that affect capital levels, OSFI expects leadership teams to weigh all internal and external factors?including the level of the DSB and OSFI expectations and requirements?before arriving at a final course of action.

OSFI continues to monitor economic and financial conditions as well as risks and vulnerabilities to the banking system and may take further action should conditions warrant.

Quote

"Today's decision to keep the Domestic Stability Buffer at 2.50% reflects OSFI's full analysis of both short-term risks and longer-term vulnerabilities in the Canadian financial sector as well as the broader economy. A DSB at this level is a prudent and appropriate measure given the current environment."

-  Jamey Hubbs, Assistant Superintendent, Deposit-Taking Supervision Sector, OSFI

Quick facts

• The level of the Domestic Stability Buffer ranges from 0% to 2.5% of D-SIBs' total risk-weighted assets.
• OSFI reviews and sets the DSB level every June and December, but can make changes at other times as circumstances warrant.

Associated Links

• December 10, 2021 letter to industry
• Backgrounder on the Domestic Stability Buffer
• June 2021 DSB release announcement
• Previous Domestic Stability Buffer announcements

About

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. OSFI supervises more than 400 federally regulated financial institutions and 1,200 pension plans to determine whether they are in sound financial condition and meeting their prudential requirements.

SOURCE Office of the Superintendent of Financial Institutions