First D-SIBs

This week in Ottawa, the Federal financial regulator OSFI has increased prudential capital requirements for the country's biggest banks.  The so-called D-SIBs (Domestic Systemically Important Banks), which are six in number*, will now have to hold 2.25 percent of additional Tier 1 capital (also called CET1 capital) beyond the amounts required by international regulators, up from a current level of 2.0 percent.  This will bring the total CET1 capital requirement to 10.25 percent, starting in April 2020.

In a sense, OSFI's announcement is purely symbolic, in that all six of the D-SIBs already hold significantly more CET1 capital than the new requirement.  However, this is the third such increase mandated by OSFI in the past twelve months. The regulator is signalling that it is increasingly concerned over both domestic vulnerabilities (notably high household indebtedness) and global risks,  and is warning the banks to be guided accordingly. 

Canada's regulators have never stopped bragging about how well the country's financial institutions weathered the financial crisis a decade ago. It looks as if OSFI is determined to make sure that when the next crisis hits, it (and the banks themselves) can maintain that enviable track record.

* Bank of Montreal, Bank of Nova Scotia, Banque Nationale du Canada, Canadian Imperial Bank of Commerce, Royal Bank of Canada, Toronto Dominion Bank. The final two of these institutions are also part of the global "too big to fail" roster.