Christine Dobie
(Bloomberg) — Canada’s financial regulator left capital requirements unchanged for the country’s largest banks, signaling that it believes systemic risks to bank balance sheets remain stable despite economic uncertainty over next year’s pending review of the North American Free Trade Agreement.
The Office of the Superintendent of Financial Institutions said in a statement on Thursday that the domestic stabilization buffer would remain at 3.5% following the semi-annual review, the fifth consecutive time it has been unchanged. The regulator last raised the buffer in June 2023.
Stability buffers, often likened to emergency funds, are designed to protect the financial system by ensuring lenders have enough funds on hand to absorb losses during an economic downturn. OSFI lowered rates early in the pandemic to give banks more room to lend and help spur growth, then raised rates as the economy recovered.
Thursday’s decision means Canadian banks will continue to be required to have common equity Tier 1 capital of at least 11.5 per cent of risk-weighted assets. All six large banks easily beat this ratio, with the average CET1 ratio reported in fiscal fourth-quarter earnings being 13.6%.
“Key vulnerabilities in the banking system remain elevated but stable,” OSFI said in a statement, noting that household debt is high relative to income but noting that the measure is below historical peaks. It also pointed to global uncertainty and geopolitical risks. “Canadian corporate debt growth has slowed, but credit quality is vulnerable to trade-related headwinds.”
Peter Routledge, head of financial institutions, said OSFI does not expect to increase buffers at current levels “absent a significant change in vulnerabilities.”
“We continue to monitor existing vulnerabilities and risks closely, including remaining high and growing household debt, uncertainty in housing and commercial real estate, and some signs of credit stress, such as gradually rising delinquencies and reserves in some consumer and business sectors,” Routledge said in prepared remarks.
Canada’s economy has shown modest resilience in recent months, with inflation holding steady near the Bank of Canada’s target and the labor market showing some strength, with job growth and unemployment declining. Gross domestic product grew at an annual rate of 2.6% in the third quarter, a clear rebound from the contraction earlier this year.
Credit trends appear stable, although the Big Six banks did set aside more funds for possible bad loans in the fiscal fourth quarter than in the previous period. The main uncertainty facing the country’s economy is next year’s renegotiation of the U.S.-Mexico-Canada trade agreement.
OSFI proposed relaxing capital rules for certain business and real estate loans to encourage more lending to businesses. The changes will see regulators reduce the risk weighting of these loans, allowing banks to lend more while holding the same amount of capital.
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Bloomberg CET1 Domestic Stability Buffer DSB Office of the Superintendent of Financial Institutions OSFI Peter Routledge Regulator
Last modified: December 18, 2025
