All organizations regulated by the Office of the Superintendent of Financial Institution (OSFI) should maintain capital and liquidity buffers well above their averages during this ­uncertain rising interest rate environment, according to Peter Routledge.

“We believe this is the appropriate, prudent thing to do, and we constantly scrutinize the boards of directors of financial institutions to ensure their risk appetites are fully aligned with the overriding goal of resiliency,” said the superintendent of financial institutions in a speech at the Economic Club of Canada.

“The market will not impose great costs on financial institutions that maintain large, plentiful, and safe buffers; in hard times, the market will, however, impose severe costs on those financial institutions that fail in this regard.”

In June, OSFI reiterated banks would need to have the capital equivalent to 2.5 per cent of total risk-weighted assets to help address heightened financial uncertainty.

The buffer was introduced back in 2018 as an addition to existing requirements for Canada’s big banks.



Despite the rise of mortgage rates heightening “the risk of a correction that could affect asset valuations and repayments” for Canadians, Routledge said OSFI would not adjust the standards in B-20.

OSFI first created its Residential Mortgage Underwriting Practices and Procedures Guideline (B-20), in 2012. The guideline set expectations for residential mortgage underwriting for federally regulated lenders.

“The uncertainty and anxiety caused by a rising interest rate environment have, understandably, caused some Canadians to advocate for a loosening of the underwriting standards in Guideline B-20,” Routledge said.

“Let me reassure those of you who oppose a loosening of underwriting standards that OSFI will not do that.”

Canada’s banking regulator announced in June that it tightened underwriting standards on combined loan plans such as reverse mortgages, mortgages with shared equity features and combined loan plans.

Routledge reiterated OSFI is “constantly evaluating the MQR (Minimum Qualifying Rate) to measure its efficacy in sustaining sound residential mortgage underwriting.”

“Because Guideline B-20 touches home ownership, it gets an extraordinary amount of public attention – at least relative to all our other regulatory guidelines,” Routledge said.

“We accept this reality – housing is crucial to all Canadians and Guideline B-20, whether we at OSFI like it or not, matters to Canadians. And so, our job is to address concerns with B-20 transparently and forthrightly.”