Keep the Domestic Stability Buffer Where it is Amid Global Uncertainty But Be Ready to Lower Swiftly: DSB Council

June 4, 2025 – The C.D. Howe Institute’s Domestic Stability Buffer Council (DSBC) recommends that the Office of the Superintendent of Financial Institutions (OSFI) maintain the Domestic Stability Buffer (DSB) for Canada’s largest banks at 3.5 percent of total risk-weighted assets at its next setting in June. 

The domestic stability buffer is the capital Canada’s major banks must set aside to cover potential losses during periods of financial stress. The buffer applies to the country’s domestic systemically important banks: RBC, TD, Bank of Montreal, Scotiabank, CIBC, and National Bank.

The expert Council provides OSFI, industry participants, and economic policy leaders with an independent assessment of the appropriate size of the buffer in keeping with OSFI’s mandate of contributing to public confidence in the Canadian financial system.

At the DSBC’s May 20th meeting, Council members debated whether to hold the buffer at 3.5 percent or reduce it given weakening economic conditions and unprecedented levels of economic and geopolitical uncertainty.

Ultimately, members settled on leaving the buffer unchanged arguing that:

• The buffer is not currently acting as a constraint on credit, given banks’ Common Equity Tier 1 (CET1) ratios, which range from 12.9 to 13.6 percent, well above the minimum 11.5 percent;
• OSFI should keep its “powder dry” in case of an outsized economic downturn, given the potential magnitude of a tail-risk event; and
• A release now would be premature, as the economy has not yet reached the point where an on-cycle reduction is necessary, and emergency action could be taken off-cycle if needed.

The Council’s consensus was to hold the buffer steady while maintaining readiness for swift, off-cycle action if conditions deteriorate further. However, members also noted more general domestic economic weakness that highlights the need to review Canada’s regulatory framework to support increased capital flow.

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For more information contact: Jeremy Kronick, Chair of the Domestic Stability Buffer Council and Vice-President, Economic Analysis and Strategy, C.D. Howe Institute; and Percy Sherwood, Associate Editor and Communications Officer, C.D. Howe Institute, 416-407-4798, psherwood@cdhowe.org.

The mission of the Centre on Financial and Monetary Policy at the C.D. Howe Institute is to be the foremost hub of influence and direction on critical and emerging issues in both financial services and monetary policy. It aims to improve the design and awareness of public policy in the areas of financial and monetary policy by providing best-in-class scholarship and insights that Canadians can trust.

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