Tausi Insider

Canada’s banking regulator has raised the ceiling on bank capital levels and ramped up the reserves the country’s largest banks must hold, citing rising risks posed by inflation, interest-rate hikes and household debt as reasons to expand a financial safety net designed to guard against economic shocks. The Office of the Superintendent of Financial Institutions (OSFI) increased the maximum level of the domestic stability buffer Thursday. The DSB, which will now range from 0 to 4 per cent of a bank’s risk-weighted assets, is a store of capital built up in good times to be used to soften the blow when conditions turn sour. OSFI also announced that it will set the buffer higher on Feb. 1, 2023, raising it to 3 per cent from its current level of 2.5 per cent, which had been the top end of the DSB’s range since it was formally created in 2018. By requiring banks to hold more capital when business is good and credit losses are low, OSFI is building a surplus that it can then release when b...

Canada’s banking regulator has raised the ceiling on a capital buffer that it requires the country’s largest banks to hold, citing risks from inflation, rising interest rates and household debt as reasons for caution. The Office of the Superintendent of Financial Institutions (OSFI) announced a change Thursday that will increase the maximum level of the Domestic Stability Buffer, or DSB. The buffer, which is a store of capital built up in good times that can be used to soften the blow from economic shocks, will now have a range of 0 to 4 per cent of a bank’s risk-weighted assets. OSFI also announced Thursday that the buffer’s level will be increased to 3 per cent as of Feb. 1, 2023. That is an increase of 0.5 per cent from the current level of 2.5 per cent, which had been the maximum level until now. OSFI updates the DSB level at least twice annually, but can change it any time to respond to the economic environment. The new, higher DSB level means banks must maintain common equity T...

People cross the street in front of the Bank of Montreal building in Toronto. The bank is launching a major share sale to raise funds to bolster its reserves. Doug Ives/The Canadian Press Bank of Montreal BMO-T is raising funds through a major share sale in a move to bolster its reserves just days after Canada’s banking regulator increased the ceiling on banks’ required capital levels. The lender said Monday that it plans to raise $3.15-billion through a share offering to meet the regulator’s raised capital requirements. Last week, the Office of the Superintendent of Financial Institutions (OSFI) increased the minimum capital levels that the country’s largest banks must hold starting Feb. 1, citing rising financial risks as inflation and interest rates strain the economy. BMO plans to sell 11,805,000 common shares to the public for $118.60 per share for total gross proceeds of approximately $1.4-billion. The bank is leading a syndicate of underwriters that it has granted an option to...

A Toronto home for sale is seen in this 2019 file photo. Tijana Martin/Tausi Insider Canada’s bank regulator said it is not changing the mortgage stress test, ignoring calls to relax the rules and offer relief to borrowers after the spike in borrowing costs. The Office of the Superintendent of Financial Institutions, or OSFI, said the mortgage stress test for uninsured bank mortgages would continue to require borrowers to qualify at a rate of 5.25 per cent or two percentage points above their actual contract, whichever is higher. “It is prudent that lenders continue to test borrowers for adverse conditions,” the regulator said in a press release. OSFI’s announcement Thursday was part of its annual review of the stress test, announced each December. Carrick: Renting is a personal finance dumpster fire, yet it’s also the hottest trend in housing With mortgage rates hovering around 5 per cent, borrowers must show they can make their loan payments with an interest rate at 7 per cent. Tha...

Analysts expect CIBC to turn to public markets to raise funds to deal with a potential charge in a New York lawsuit and new, higher reserve requirements coming from the Office of the Superintendent of Financial Institutions. Evan Buhler/The Canadian Press Canada’s largest banks are under pressure to raise money after the country’s banking regulator raised capital requirements, with analysts predicting that Canadian Imperial Bank of Commerce CM-T will be the next of the Big Six banks to bolster its reserves. In early December, the Office of the Superintendent of Financial Institutions (OSFI) boosted the reserves that banks must hold, which prompted Bank of Montreal BMO-T to sell new shares for the second time this year. BMO raised a total of $3.35-billion in a share offering early this month, as it works toward closing one of the largest takeover deals on record by a Canadian bank. With CIBC facing a potential US$1-billion charge in a lawsuit with a New York hedge fund, analysts expec...

Peter Routledge, who heads the Office of the Superintendent of Financial Institutions, struck an assertive tone in his first public remarks since OSFI raised the domestic stability buffer and ignored calls to relax the mortgage stress test in December. Fred Lum/the Globe and Mail Canada’s banking regulator is gearing up to take a more active role among the country’s largest financial institutions, signalling that it could continue to boost the amount of money lenders must hold as a buffer against economic risks. Peter Routledge, who heads the Office of the Superintendent of Financial Institutions (OSFI), said at a Monday conference held by Royal Bank of Canada RY-T that the regulator will “adapt or change course more readily and more frequently than in the past.” The message was delivered one month after the regulator adjusted the range of the capital level it could force the banks to maintain, sparking concerns over whether it would hike requirements just as some of Canada’s largest...

Office of the Superintendent of Financial Institutions (OSFI) Peter Routledge in Ottawa. Dave Chan/Tausi Insider Canada’s banking regulator is proposing big changes for housing finance, with potentially three new limits on how lenders grant mortgages. The proposal comes after the Bank of Canada has ramped up interest rates by four percentage points since March 1, the average Canadian home price has plunged 22.4 per cent in the past nine months and the threat of recession looms. On Thursday morning, the Office of the Superintendent of Financial Institutions (OSFI) released the new proposed mortgage guidelines for public comment. Essentially, OSFI wants to skim another layer of the least-qualified borrowers off the federally regulated mortgage market. But how they’ll do that is not yet determined. “We’ve thrown out some ideas we’re considering,” OSFI Superintendent Peter Routledge told Tausi Insider in an interview. “We’re opening up the consultation early. We want ideas. We want const...

Canada's banking regulator says mortgage lending risks have increased considerably since the onset of the pandemic, and as a result they are proposing tougher lending rules. Justin Tang/The Canadian Press Canada’s bank regulator is proposing tougher lending rules that would make it even harder for borrowers to get a mortgage, after a spike in borrowing costs that has upended household budgets and ramped up risks to the banking system. Three proposals unveiled Thursday by the Office of the Superintendent of Financial Institutions (OSFI) would tighten underwriting rules for federally regulated banks, which already have the strictest standards among lenders. The regulator is considering limiting the share of highly leveraged borrowers a bank can have in its mortgage portfolio, toughening debt servicing metrics and bolstering the mortgage stress test for risky loans. If new rules are implemented, they would make it harder for borrowers to get a mortgage. But the current climate is al...