The Globe and Mail reports in its Friday edition that the Office of the Superintendent of Financial Institutions is raising a key threshold for banks' capital reserves above prepandemic levels, signalling confidence in an economic recovery.
The Globe's James Bradshaw writes that the OSFI said Thursday it will raise its domestic stability buffer to 2.5 per cent of risk-weighted assets starting Oct. 31 -- the maximum level and a significant increase from the current 1-per-cent buffer.
The move will rebuild a cushion that banks were allowed to use to soften the blow of the economic shock of the pandemic, giving them extra capacity to absorb potential losses and continue lending money throughout the crisis.
By raising the level of the buffer now, the OSFI is swiftly resetting a key regulatory defence against the next crisis. However, it also sets expectations for how much capital banks must set aside and how much will be available to pay out to shareholders once current capital restrictions are lifted.
Banking analysts interpreted the move as a sign that OSFI believes the worst risks from the pandemic are over and that the likelihood of banks raising dividends and buying back shares this year is increasing.
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