The federal banking regulator says it will increase the domestic stability buffer for the country’s big banks to 2.5 per cent from one per cent as economic and market disruptions stemming from the pandemic have subsided.
The change, which increases the amount of capital the banks must hold to cover unexpected losses, will take effect on Oct. 31.
The Office of the Superintendent of Financial Institutions cut the buffer to one per cent in March last year in anticipation of the economic disruption due to the pandemic.
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It says the lower level gave Canada’s big banks the ability to absorb potential losses and continue to make loans.
The regulator says 2.5 per cent is prudent given the current environment, where key vulnerabilities such as household and corporate debt levels remain elevated.
The domestic stability buffer only applies to Canada’s six largest banks, which have been designated as systemically important.