The Office of the Superintendent of Financial Institutions (OSFI) published details on Monday of the capital buffers, known as the domestic stability buffers, that Canada’s systemically-important banks are required to hold to protect against systemic vulnerabilities.
The buffer, which ranges between 0% and 2.5% of a bank’s total risk-weighted assets (RWA), is currently set at 1.5% of RWAs, OSFI’s document stated. The systemic vulnerabilities that are addressed in the buffer currently include the debt levels of Canadian consumers; institutional indebtedness; and asset imbalances in the Canadian market.
“The increased transparency will support banks’ ability to use this capital buffer in times of stress by increasing the market’s understanding of the purpose of the buffer and how it should be used,” OSFI’s document noted.
The regulator notes that it will review the buffer on a semi-annual basis, in June and December; the first review is slated for December 2018. The buffer will be decreased when OSFI decides that the banks’ exposure to systemic vulnerabilities have diminished. Conversely, it will be increased when the regulator believes that exposure has risen. Higher buffers will be phased in whereas decreases will be effective immediately.
Banks will have to start including the domestic stability buffer as part of their quarterly public disclosures for the reporting period ending July 31.