Bank Watchdog in Canada Signals Confidence With Capital Lift

Canada’s banking regulator raised a key capital requirement for large domestic banks, a signal that it considers the economic risks of the Covid-19 pandemic to have largely subsided, Bloomberg News reported. The country’s bank superintendent said Thursday it will raise the domestic stability buffer to 2.5% from 1%, beginning in October. The regulator lowered the buffer in March 2020, giving banks more room to absorb losses while still lending through the crisis. The move by the Office of the Superintendent of Financial Institutions suggests the regulator believes the banks are no longer at risk of a wave of defaults and have sufficient capacity to lend, and that credit markets are functioning well. Excess Capital Canada’s largest banks can easily meet the new requirements because they are awash in capital. They have about C$80 billion ($64.8 billion) more in common equity tier one capital than is required to meet regulatory minimums, and C$40 billion more than the 11% CET1 ratio they typically target, according to Bloomberg Intelligence. Read more.