Superintendent says there is uncertainty around implementation by other jurisdictions
OSFI has decided to extend its pause on changing the level that Canadian big banks’ risk-weighted assets can fall when calculated using internal models.
The Basel III standardized capital floor level, or ‘output floor’ was introduced at 67.5% last year and was due to be raised to 70% this year and 72.5% in 2026. This was part of a range of safeguards designed to protect the integrity and resilience of the Canadian financial system such as the Domestic Stability Buffer (DSB).
But the requirement on risk-weighted asset ratios triggered concerns that the new rules would impact Canadian banks' competitiveness.
US banks warned that implementing the rules would leave them with less money for lending but since President Trump was re-elected Wall Street banks have renewed hope that a softer approach will be seen by regulators.
In a statement, OSFI superintendent Peter Routledge acknowledge that, while Canada remains fully committed to fully implementing the Basel III standards, as do the other members of the Group of Central Bank Governors and Heads of Supervision who reaffirmed this position last week, there is uncertainty about the pace at which others will do so.
“Although OSFI has nearly fulfilled its commitment to implement all aspects of the Basel III framework, we will not extend the implementation lead we share with a small number of fellow jurisdictions,” Routledge said.
The superintendent reiterated the importance of implementing Basel III to “strengthen banks’ ability to withstand financial shocks and support economic growth while enabling them to compete and take reasonable risks.”
But he noted that it was important to move in step with other jurisdictions “so that competitive balance prevails throughout the international banking system.”
OSFI will continue to monitor developments in the Canadian financial system and broader economy and will adjust banks’ capital buffer requirements if required.
“While OSFI sets the DSB in June and December, we stand ready to adjust the DSB, as well as capital expectations for SMSBs, should conditions warrant,” concluded Routledge.
