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Canada’s financial regulator pledged that a key capital requirement for the country’s largest banks will remain stable as long as he’s in the role.
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Peter Routledge, superintendent of financial institutions, said Wednesday he wants to give lenders “capital-planning certainty,” after lowering the domestic stability buffer in June, the first change in three years. The buffer is often compared to a rainy-day fund and, at the time, the regulator cut it by 50 basis points to three per cent.
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“I’m superintendent. I make the final decision. You can take three per cent to the bank. It will stay there. We are not changing it,” he said at a conference hosted by Bank of Nova Scotia, noting that his term ends in June 2028.
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Routledge also noted that the Office of the Superintendent of Financial Institutions has imposed no restrictions on how banks use the excess capital, unlike during the COVID-19 pandemic, when the regulator limited dividends and share buybacks.
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Canada’s biggest banks are now required to have Common Equity Tier 1 capital of at least 11 per cent of risk-weighted assets. All six banks comfortably exceed that minimum, and Routledge has pointed in the past to the excess capital the firms hold and suggested he’d like to see more lending to help support economic growth.
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But it’s ultimately up to the banks’ boards to make capital-allocation decisions, he said Wednesday. “You should never rely on a regulator to allocate capital. We are not built for that.”
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Also speaking at the Scotiabank conference Wednesday, several bank chief executive officers said they expect to pursue organic growth followed by share repurchases, favouring those options over large-scale acquisitions.
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Scotiabank cheif executive Scott Thomson described his firm’s capital-allocation priorities as “organic growth first, share repurchase second.”
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Toronto-Dominion Bank’s Raymond Chun said his company has the capacity for “significant buybacks,” while Royal Bank of Canada and Bank of Montreal also said they plan to continue returning excess capital through share repurchases.
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