Tiny bank
iStockphoto/Manoj Madusanka

Publicly, the world’s policymakers say they’re committed to fully implementing the final post-crisis reforms to global capital rules for banks, but with the Office of the Superintendent of Financial Institutions (OSFI) halting already-delayed changes, Morningstar DBRS Inc. is skeptical.

In July, OSFI announced a one-year delay in the adoption of certain Basel III reforms — raising the “output floor” from its current level, effectively tightening the capital requirements on the Big Six banks.

Earlier this week, the regulator said it is now putting those plans on ice “until further notice,” and that it would give the banks two years’ notice before bringing back those planned changes — the regulator cited uncertainty about banking authorities in other jurisdictions moving ahead with their own capital reforms as the reason for its move.

“In our view, it is difficult to move forward with stricter capital rules without other jurisdictions following suit,” DBRS said in a report on Friday.

Indeed, while OSFI reiterated its commitment to fully implementing the Basel III capital rules, echoing an earlier pledge from the group of central bankers that oversees global banking regulators, DBRS indicated that the landscape has shifted.

“Considering the progress made in implementing the Basel III 2017 reforms across other jurisdictions, we now view a partial adoption of the output floor and/or a multiple-year delay in its adoption in Canada as more likely, in contrast to our initial expectations,” it said.

Raising the output floor would effectively tighten the capital requirements on the Big Six banks, but DBRS said it believes that this would “[enhance] the resilience of the Canadian banking system to financial shocks.”

Yet, even with the output floor at current levels, DBRS said it views the Canadian banks as “quite resilient to potential large economic shocks,” and that it expects the big banks to continue managing their capital prudently.

“This is particularly critical in the current environment of heightened geopolitical risks and uncertainty about U.S. policy changes, including tariffs, which could adversely change the Canadian macroeconomic outlook, with clearly negative repercussions for the Canadian banking sector,” it said.