Big banks will need to add a bit more to their buffer in 2019

Canada’s largest banks will be required to make extra provision to offset financial risks in 2019.

Twice a year the Office of the Superintendent of Financial Institutions (OSFI) sets the limit for the Domestic Stability Buffer, a requirement to maintain a financial buffer for those banks designated as important to Canada’s financial system, essentially ‘too big to fail’.

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The level of the buffer was 1.5% in April but OFSI has announced this week that it will increase to 1.75% from April 2019.

Why the increase?
OSFI says that while Canada’s credit environment is currently favourable, there are risks from high levels of household debt relative to income, uncertainty in some housing markets, and increasing levels of corporate debt.

While these elements do not pose an immediate risk, OSFI believes that Canada’s big banks should make extra provisions while the going is good.

“In light of positive credit performance and generally stable economic conditions, now is a prudent time for banks to build resilience against future risks to the Canadian financial system,” said Jamey Hubbs, Assistant Superintendent, Deposit-Taking Supervision Sector.

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