OSFI Sets Domestic Stability Buffer Level at 2.25%
OSFI has set the Domestic Stability Buffer, or DSB, at 2.25% of total risk-weighted assets, with effect from April 30, 2020. The buffer is applicable to domestic systemically important banks (D-SIBs) and is calculated as specified under the Capital Adequacy Requirements (CAR) Guideline. As of December 2019, six federally regulated financial institutions have been designated as D-SIBs—namely, 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 reflects the view of OSFI that key vulnerabilities to D-SIBs in Canada remain elevated and show signs of increasing in some cases. In addition, global vulnerabilities related to ongoing trade tensions and rising leverage are growing, which could increase the chance of a spillover of external risks into the Canadian financial system. The specific vulnerabilities covered by the buffer continue to include:
- Canadian consumer indebtedness
- Asset imbalances in the Canadian market
- Canadian institutional indebtedness
Against a backdrop of accommodative low interest rates and stable economic conditions, it is prudent to build additional resilience against potential shocks to the financial system. An effective capital regime ensures that banks are holding adequate capital to protect against risks to the financial system, while encouraging them to use their buffers during times of stress to avoid asset-sales or drastic reductions in lending. This announcement is consistent with recent statements from FSB, which caution that “given rising global vulnerabilities, authorities should continue to assess whether existing buffers are adequate to support resilience, taking into account their domestic conditions and cyclical position.”
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. D-SIBs must publicly disclose the level of the Domestic Stability Buffer and include a brief narrative on the buffer. Disclosures are expected quarterly and when OSFI publicly announces decisions to change the buffer level. Breaches of the buffer by an individual bank will require public disclosure pursuant to International Financial Reporting Standards (IFRS).
Related Links
Keywords: Americas, Canada, Banking, Domestic Stability Buffer, D-SIBs, Systemic Risk, Capital Adequacy Requirements, Financial Stability, Basel III, OSFI
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Blake Coules
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
US Agencies Update Rule on Derivative Contracts Exposure CalculationRelated Articles
BIS Report Notes Existing Gaps in Climate Risk Data at Central Banks
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
EBA Examines Remuneration Data and Use of Large Exposure Exemptions
The European Banking Authority (EBA) published a report that examines the use of certain exemptions included in the large exposures regime under the Capital Requirements Regulation (CRR).
BoE Issues Update on Ongoing Data Transformation Program
The Bank of England (BoE) issued a communication to firms to provide an update on the progress of the joint data transformation program—which is being led by BoE, the Financial Conduct Authority (FCA), and the industry—for the financial sector in UK.
EBA Issues Draft Methodology and Templates for 2023 Stress Tests
The European Banking Authority (EBA) published the draft methodology, templates, and template guidance for the European Union-wide stress test in 2023.
EBA Issues SREP Guidelines and Standards for Investment Firms
The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) jointly published the final guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) for investment firms.
BoE and PRA Publish Regulatory Updates for Financial Sector Entities
The Prudential Regulatory Authority (PRA) proposed expectations, via CP8/22, in respect of changes to the instruments or claims that comprise unvested deferred sums awarded to material risk-takers as part of their variable pay.
EIOPA Issues Taxonomy for Solvency II Reporting, Issues Other Updates
The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.7.0 of the Solvency II data point model (DPM) and XBRL taxonomy.
OSFI Updates Address BCAR Reporting, Basel Reforms, and Cyber Risk
The Office of the Superintendent of Financial Institutions (OSFI) updated the 2023 Basel Capital Adequacy Reporting (BCAR) manual as well as the 2023 BCAR return.
FSB Report Outlines Progress on Climate Risk Roadmap
In a letter to the G20 Leaders, ahead of the July 2022 meeting, the Financial Stability Board (FSB) Chair set out an overview of the key work done by FSB.
SRB Issues Resolvability Assessment and Bail-in Implementation Guide
The Single Resolution Board (SRB) published its resolvability assessment and "heat map" for 2021, updated the operational guidance on implementation of bail-in tool, and issued the annual report for 2021.
