Canada’s lead banking regulator has pushed back against suggestions that domestic capital rules are overly onerous and are restricting banks’ ability to lend. Peter Routledge, superintendent at the Office of the Superintendent of Financial Institutions (OSFI), said in an interview that the current regulatory stance finds a “Goldilocks zone” - not too loose, not too strict - for the nation’s largest lenders.
OSFI published a technical report on Friday that benchmarks Canada’s six systemically important banks against counterparts in the United States, the United Kingdom and Europe. The report’s data indicate that, although headline capital requirements in Canada look comparatively high, the Domestic Stability Buffer provides flexibility that helps banks preserve lending capacity.
Routledge emphasised that the system’s design stops short of creating what some critics call a "gold-plated" capital regime. "That is why we contend that our system isn’t gold-plated for capital," he said, noting that top Canadian banks such as Royal Bank of Canada (TSX:RY) and Toronto Dominion Bank (TSX:TD) hold capital cushions that substantially exceed those of many international peers.
The technical analysis also highlights enduring profitability among Canadian banks. The report finds a median return on equity that frequently ranks at the top of global comparisons, a fact Routledge described as a key protective layer for the financial system. "ROE first and foremost tells us there’s ample earnings as a line of first defense that’s there before capital," he said, pointing to earnings as the initial buffer ahead of tapping capital buffers.
At the same time, OSFI is evaluating targeted adjustments to risk weightings applied to business loans amid concerns about constrained credit access for small enterprises. Routledge characterised potential changes in risk-weighting density as incremental rather than transformative. "It’s not a game changer," he said, adding that any recalibration would slightly shift internal capital allocation without meaningfully increasing risk to an otherwise stable Canadian banking system.
The report and Routledge’s comments together frame OSFI’s approach as one that seeks to balance resilience and the functional needs of lenders to finance households and businesses. The Domestic Stability Buffer remains a central policy tool in that balancing act, according to the regulator’s published findings and commentary.
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Summary
OSFI contends that Canada’s bank capital rules strike an appropriate balance between safety and lending capacity, supported by a technical benchmarking report and by banks’ strong profitability. The regulator is considering modest risk-weighting changes for business loans to ease small business credit flow but says such moves would not materially raise system risk.