The Globe and Mail reports in its Wednesday edition that the federal banking regulator is forcing the banks to hold more capital because of "elevated" risks, including high levels of household and corporate debt. The Globe's James Bradshaw writes that for the second time in six months, the Office of the Superintendent of Financial Institutions (OSFI) will raise the "domestic stability buffer" held by banks, citing "key vulnerabilities" to the banking system. The buffer is designed to help lenders cushion the impact of future economic shocks. Starting Oct. 31, it will be set at 2 per cent of a bank's risk-weighted assets, up from the current 1.75 per cent. The buffer is meant to be built up in strong economic times, bolstering banks' core capital reserves when credit is healthy. The regulator can then reduce the required buffer in the event of a downturn or recession, freeing up capital that banks can use to continue lending. Rob Colangelo, an analyst at DBRS, called the increase to the buffer "a prudent step by OSFI." The change, however, could subtly alter the math for acquisitions or share buybacks. "It probably means the banks can't be as flexible in terms of returning capital to shareholders," Mr. Colangelo said.
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