Canadian financial regulator increases stability cushion for big banks to 2.5%

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By Nichola Saminather

TORONTO (Reuters) – Canada’s financial regulator will increase the amount of capital the nation’s largest lenders must hold to hedge against risk to 2.5% of risk-weighted assets from October 31, against 1% currently, he announced Thursday.

While key vulnerabilities, including household and corporate debt levels, remain high, economic and market disruptions resulting from the pandemic have eased and bank capital levels have been resilient, the Bureau said. from the Superintendent of Financial Institutions in a press release.

The change brings Common Equity Tier 1 (CET1) capital – the measure of core bank capital – to 10.5% of risk-weighted assets; a base level of 4.5%, a “capital conservation buffer” of 2.5% and a surcharge of 1% for systemically important banks, plus the DSB.

The surprise increase is the first since OSFI made an out-of-schedule cut of 1.25 percentage points in March, freeing up more than C $ 300 billion ($ 222 billion) in lending capacity to help limit the economic impact of the pandemic. He has since maintained this level in his semester exams.

“Today’s decision to set the ORD at 2.5% strengthens the stability of Canada’s financial system, while preserving its ability to lend to Canadian households and businesses and to support economic recovery,” said Jamey Hubbs, deputy superintendent of the deposit oversight sector at OSFI, said in the statement.

Canada’s six largest banks, however, have accumulated much higher levels of capital, in part due to a moratorium on dividend increases and share buybacks imposed by OSFI in March 2020. Their CET1 ratios range from a low of 12.2% at the National Bank of Canada to 14.2% at the Toronto-Dominion Bank, which is equivalent to more than C $ 82.4 billion above the minimum CET1 requirement.

The surprise increase is the first since OSFI made an out-of-schedule cut of 1.25 percentage points in March, freeing up more than C $ 300 billion ($ 222 billion) in lending capacity to help limit the economic impact of the pandemic. He has since maintained this level in his semester exams.

Previously, OSFI had raised the required level by 25 basis points at each semi-annual review since its introduction to 1.5% in June 2018.

($ 1 = 1.2326 Canadian dollars)

(Reporting by Nichola Saminather; Editing by Alex Richardson and Bernadette Baum)

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