OSFI set the level for the Domestic Stability Buffer at 1.75% of total risk-weighted assets, as calculated under the Capital Adequacy Requirements (CAR) Guideline. The buffer has been set at this level, with effect from April 30, 2019. The Domestic Stability Buffer applies only to the federally regulated financial institutions that have been designated as domestic systemically important banks (D-SIBs).
While Canada is in the midst of a favorable credit environment with a stable domestic economy, household debt levels continue to be high relative to incomes and uncertainty persists in some housing markets. Corporate indebtedness is also growing, representing a potential future risk. Recently, in discussing vulnerabilities in the global financial system, FSB remarked that financial supervisors, such as OSFI, should “consider using the current window of opportunity to build resilience, particularly macro-prudential buffers where appropriate.” OSFI is of the view that increased transparency will support banks’ ability to use this capital buffer in times of stress by increasing understanding of the purpose of the buffer and how it should be used. This reflects OSFI’s assessment that, on balance, the identified systemic vulnerabilities remain elevated while economic conditions continue to be accommodative. Specific vulnerabilities covered by the buffer continue to include:
- Canadian consumer indebtedness
- Asset imbalances in the Canadian market
- Canadian institutional indebtedness
The Domestic Stability Buffer supplements the Pillar 1 buffers (Capital Conservation Buffer, D-SIB surcharge and the Countercyclical Buffer) outlined in Chapter 1 of the Capital Adequacy Requirements guideline. OSFI reviews and sets the level of the Domestic Stability Buffer in June and December of each year based on its ongoing monitoring of the Canadian financial system and the entities it regulates and in consultation with its federal regulatory partners.
- News Release
- Notification to Banks
- Overview of Domestic Stability Buffer
- FSB Report Discussing Macro-Prudential Buffers
Keywords: Americas, Canada, Banking, D-SIBs, Domestic Stability Buffer, CAR, Systemic Risk, OSFI
Sam leads the quantitative research team within the CreditEdge™ research group. In this role, he develops novel risk and forecasting solutions for financial institutions while providing thought leadership on related trends in global financial markets.
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