TORONTO, June 19 (Reuters) – Canada’s banking regulator on Friday lowered the capital requirement \u200cfor the country’s biggest banks for the first time in three years, a move that will allow them to lend more as the government seeks to boost investment in AI, resources and other areas during trade and geopolitical uncertainties.<\/p>\n
The Office of \u200bthe Superintendent of Financial Institutions (OSFI), which oversees the banks to ensure financial stability, lowered the domestic \u200bstability buffer (DSB) to 3% from 3.5%.<\/p>\n
The changes to the DSB, the additional capital the \u2060country’s big six banks must set aside to absorb losses during financial stress, are applicable to Royal Bank \u200bof Canada (RY.TO), TD Bank (TD.TO), BMO (BMO.TO), Bank of Nova Scotia (BNS.TO), CIBC (CM.TO), opens new tab and National Bank of Canada (NA.TO), opens new tab and are effective \u200bimmediately, OSFI said.<\/p>\n
The decision to lower the DSB after three years is supported by the banks’ “extraordinary loss-absorption capacity” for a range of risks, OSFI said, and will unleash hundreds of billions of Canadian dollars for lending. Banks could deploy capital more aggressively and \u200bhelp boost the Canadian economy during a time of global uncertainty related to trade negotiations with the \u200bUnited States, restructuring of supply chains, and Middle East geopolitics.<\/p>\n
“The opportunities are there for the banks and we’re getting out of \u200cthe \u2060way,” Peter Routledge, the regulator’s superintendent, said in an interview.<\/p>\n
“What we’ve done is provide clarity and certainty around capital. And it’s up to the banks to figure out how to deploy it…. certainly one avenue is supporting the Canadian economy’s adjustment to this new environment,” Routledge said.<\/p>\n
The regulator also noted that despite the challenges, unemployment, \u200bconsumer delinquencies and credit \u200blosses have stabilized in \u2060recent periods.<\/p>\n
In the latest quarter, the big banks all surpassed profit expectations, helped by strong earnings at their domestic businesses and capital market segments. The earnings were helped \u200bby the banks’ diversified model and underwriting practices, which have helped slow loan \u200bimpairments and \u2060credit losses.<\/p>\n
Canada’s top six banks, which control roughly 90% of the market, are among the most resilient financial institutions in the world, having weathered financial crises and other episodes that took a toll on banks in other regions.<\/p>\n
However, \u2060executives at \u200bthe six banks said the near-term outlook for Canada hinges on \u200btrade talks with the U.S. and how long the Middle East conflict persists, which will have an impact on client demand, supply \u200bchain stability, and the direction of monetary policy.<\/p>\n
Reporting by Nivedita Balu in Toronto; Editing by Caroline Stauffer, Kirsten Donovan<\/p>\n
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