OSFI has decided to set the level of the Domestic Stability Buffer at 2.00% of total risk-weighted assets, as calculated under the Capital Adequacy Requirements Guideline. The buffer has been set at this level, with effect from October 31, 2019. The Domestic Stability Buffer applies only to the federally regulated financial institutions that have been designated as domestic systemically important banks (D-SIBs).
In December 2018, the Domestic Stability Buffer had been set at 1.75%, with effect from April 30, 2019. As of June 2019, the federally regulated financial institutions that have been designated as D-SIBs are Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, and Toronto-Dominion Bank. This increase in the buffer (to 2%) reflects the OSFI assessment that, on balance, the identified systemic vulnerabilities to D-SIBs in Canada remain elevated while economic conditions continue to be accommodative. The key vulnerabilities include Canadian household indebtedness, asset imbalances in the Canadian market, and Canadian institutional indebtedness. Household debt-to-income ratio has remained high since the last domestic stability buffer decision, housing market uncertainty remains elevated, and risks related to non-financial corporate debt have continued to grow. Against this backdrop, a favorable credit environment and stable economic conditions continue to provide a window of opportunity for D-SIBs to increase their capital holdings.
The Domestic Stability Buffer contributes to D-SIBs' resilience to key vulnerabilities and system-wide risks, thus contributing to financial stability. OSFI reviews and sets the level of the Domestic Stability Buffer on a semi-annual basis (June and December), based on its ongoing monitoring of federally regulated financial institutions as well as system-wide and sectoral developments. Decisions on the calibration of the buffer are based on the OSFI supervisory judgment, are informed by its monitoring and analytical work on a range of vulnerabilities, and are made in consultation with the federal financial regulatory partners of OSFI. OSFI applies a variety of qualitative analysis and quantitative tools to the determination of the buffer, including consideration of exposure trends, financial and macro economic indicators, stress testing and other supervisory information.
Keywords: Americas, Canada, Banking, Basel III, Domestic Stability Buffer, D-SIBs, Capital Adequacy, Systemic Risk, OSFI
Previous ArticleOCC Extends Dodd-Frank Act Stress Test Deadline to November 25, 2019
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).