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Transparency in Bank Capital: Making Capital Buffers More Usable

CFA-DSB

Ten years after the global financial crisis, we can confidently say that when it comes to capital, banks are better prepared than ever to weather the next major stress event. But is having capital set aside enough, if banks don’t use it? Thinking about how to incent a bank to use its capital, particularly in a time of stress, is a challenge for regulators. In remarks prepared for CFA Society Toronto, OSFI Assistant Superintendent Carolyn Rogers speaks to the setting of capital requirements for Canada’s largest banks, the mechanics behind OSFI’s Domestic Stability Buffer, and how increased transparency can lead to appropriate market reactions when banks use their capital buffers as intended.   

“Capital buffers, and the Domestic Stability Buffer in particular, are one of the safeguards that have been put in place to help insulate the Canadian financial system from economic downturns or period of stress.  By making them more transparent and more widely understood by the markets, we expect that decisions to increase or decrease buffers, or decisions to draw on capital buffers will be seen as normal course, stabilizing actions, rather than market events.”

        
-          Carolyn Rogers, Assistant Superintendent, Office of the Superintendent of Financial Institutions

Read the complete prepared remarks at http://www.osfi-bsif.gc.ca

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