By Robb M. Stewart
OTTAWA--Canada's banking regulator is lowering the level of capital the country's largest banks must set aside, a move aimed at boosting lending at a time when the government is seeking to lure investment to kick-start the economy.
The Office of the Superintendent of Financial Institutions said Friday that the domestic stability buffer, the store of capital that banks must have on hand to be able to absorb losses and continue lending during times of stress, will fall to 3% of risk-weighted assets from 3.5%, effective immediately.
The change in the buffer--which applies to Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and Toronto-Dominion Bank--will lower expected common equity Tier 1 ratio for the biggest lenders by half a percentage point to 11%.
The buffer, introduced in 2018 in an effort to ensure systemic stability in the banking system, is set twice annually based on household debt, asset imbalances and other financial trends and risks. The regulator last raised it half a percentage point in June 2023.
The regulator said it also is lowering the top end for the range it considers for the stability buffer by a full percentage point, with the new range set at zero to 3%.
The CET1 capital ratio for Canada's six biggest banks, a key measure of the ability to absorb losses, ranged from 13% to 14.3% as of the end of April. This was even as the banks have continued to buy back shares and most increased their quarterly dividend payouts.
"By lowering both the level and top end of the range of the domestic stability buffer, OSFI will enable the banking sector to deploy its excess capital in support of Canada's economic adaptation to new opportunities," Superintendent Peter Routledge said.
Routledge, who took the helm at the regulator in mid-2021, said the expectation is that the big banks will use the capital that will be released to invest in Canada's economy, which is working through a period of structural change as it adapts to the shift in U.S. trade policy and embrace of tariffs, immigration slows, and technologies like artificial intelligence advance.
"We anticipate they will use this added capacity responsibly, including by expanding the financial services they provide to Canadian households and businesses," he said.
OSFI estimated the capital cushion equates to roughly 74 billion Canadian dollars (US$52 billion) or the equivalent of an expansion in risk-weighted assets of C$673 billion. That implies a greater scope for the large banks to take on risk at a time when Prime Minister Mark Carney's government is looking to strengthen Canada's economy and lessen a reliance on the U.S., supported by major development projects in natural resources, infrastructure, and defense.
The regulator said that at 3%, the stability buffer is judged to be sufficient to absorb potential costs posed by a range of prudential vulnerabilities.
Canada's economy shrank modestly in the first quarter, with GDP falling 0.1% in annualized terms following a 1% contraction in the final quarter of 2025. That has raised concerns the country is slipping into a technical recession, defined as two consecutive quarterly contractions, though GDP rose in per capita terms in the latest quarter and early data points to a rebound in activity in April. Hiring also recovered recently, and exports have risen.
The Bank of Canada has at each of its last five policy meetings left its benchmark interest rate unchanged, though officials have said they remain poised to act if there are signs inflation is broadening beyond gasoline and energy prices or trade is further disrupted by the renegotiation of the existing North American trade agreement.
Bank executives have welcomed what they say is a business-friendly government in Ottawa since Carney was elected on a pledge to drive up exports to markets beyond the U.S. and to smooth the path for energy and other major development projects. There is a pool of investor interest in Canada currently that hasn't been seen in years, they have said.
"I think you'll see some announcements coming soon, particularly on a number of pipelines, but we have to expedite that approval process because this capital that's excited about Canada will not wait," Royal Bank of Canada Chief Executive Dave McKay said at a Bloomberg event in Toronto earlier this week. He said there is a "risk on" environment for investing, helped by plans for port development, pipelines and the government's increasing defense spending.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
June 19, 2026 10:25 ET (14:25 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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