‘Take Risk’: Canada Regulator Cuts Bank Capital Level to Boost Lending

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(Bloomberg) — Canada’s financial regulator lowered capital requirements for the country’s largest banks for the first time in three years, giving them flexibility to lend more to support a domestic push for defense spending, critical infrastructure and artificial intelligence.   

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The decision, announced Friday, means Canada’s six largest banks will now hold about C$74 billion ($52 billion) in excess capital they can deploy without breaching regulatory limits, according to the Office of the Superintendent of Financial Institutions. 

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In the first change since June 2023, OSFI is lowering the domestic stability buffer by 50 basis points to 3% after its semi-annual review. The decision, which takes effect immediately, means Canada’s banks will need to have common equity tier 1 capital of at least 11% of risk-weighted assets. 

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All six banks comfortably exceed that ratio, with an average CET1 ratio of 13.5% across the sector, OSFI said.

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“We’re sending a message to the banks that there’s enough health and strength in the banking system to take risk and we don’t want to stand in the way of it,” Peter Routledge, Canada’s superintendent of financial institutions, said in an interview, noting that the lenders have reported consistently strong earnings results. “The risk we’re operating with right now is that capital investments don’t get unleashed fast enough to fuel Canada’s economic adjustment.”

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Vulnerabilities in the country’s financial system and economy persist, OSFI said, but “conditions have been relatively stable for some time.” Household debt is high relative to income but below historical peaks and housing prices have recently declined. Loan delinquencies, unemployment and credit losses remain within normal ranges and have recently stabilized. 

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But growth has been slow. The country’s economy contracted slightly in the fourth quarter of 2025 and the first quarter of this year. 

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The country has significant opportunities that require financial support, Routledge said, noting that there’s “a lot of risk capital looking at Canada.”

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“We’re highly confident that banks will see that deploying capital in Canada is a really good decision for shareholder value,” he added. 

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The changes mean the six banks could increase their total risk-weighted assets by C$673 billion, OSFI said.  

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The stability buffer is often compared to a rainy-day fund, intended to protect the financial system by ensuring lenders have enough capital on hand to absorb losses in a downturn. OSFI lowered it in the early days of the pandemic to give banks more room to lend and help stimulate growth before raising it over time as the economy recovered.

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Also Friday, OSFI said it is slashing the potential size of the buffer. The range will now be 0% to 3%, from 0% to 4%, a move meant to give the banks longer-term certainty that their capital requirements will remain stable, Routledge said. The last time the range was adjusted was in December 2022, when the regulator increased it to the maximum of 4%. 

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