The Office of the Superintendent of Financial Institutions (OSFI)

has maintained the domestic stability buffer for Canada’s six largest banks at 3.5 per cent. The buffer was created as a “rainy day” cushion to absorb unanticipated financial shocks.

“Conditions are .. better than our planning assumptions earlier in the year,”

Peter Routledge, superintendent of OSFI , said Thursday. He said concern a trade war with the United States would lead to economic upheaval “has not manifested itself in financial system stress.”

The big banks entered the period of potential disruption in a “position of strength,” Routledge said, with capital fortified in recent years and a total CET1 capital level of 13.6, on average.

Moreover, other concerns that could lead to financial system vulnerabilities, such as

household debt, have come down, while still remaining at a historically high level.

He noted, however, that many Canadians will renew their mortgages at higher interest rates over the next 18 months than when the home loans were taken in 2020 and 2021, which will put “financial pressure” on some households.

“We remain ready to respond should conditions change,” he said, adding that OSFI can act “with urgency when necessary.”

OSFI lowers the domestic stability buffer in times of stress, such as during the COVID-19 pandemic, to give the banks more room to continue extending loans and maintain liquidity in markets. It can also be raised in good times, with a cap of four per cent.

OSFI kept the buffer stable at 3.5 per cent in December, saying the country’s systemically important banks had sufficient capacity to absorb losses from unanticipated shocks and maintain critical services such as lending.

But that was before U.S. president Donald Trump kicked off a global trade war that first targeted Canada and Mexico.

In February, as economists were warning about the potential damage from tariffs and counter-tariffs, OSFI indefinitely paused the implementation of new global regulatory rules for banks and Routledge said he was considering responses to the trade war that would be along the lines of relief offered during the pandemic in 2020.

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A key adjustment OSFI made at that time was to allow banks to treat mortgages and business loans as performing even when payments were deferred, thereby leaving the amount of capital that had to be held against them unaffected. The regulator also temporarily relaxed covered bond limits to give banks greater access to

Bank of Canada facilities, and introduced transitional arrangements for the capital treatment of expected loss provisions under the Basel III framework.

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