Canada Delays Implementation of Basel III Capital Floor Changes
Canada's financial regulator, the Office of the Superintendent of Financial Institutions (OSFI), has announced a long-term pause on adjustments to banks' lending risk calculations. This move aligns with similar delays in other countries, including the United States, which has postponed the implementation of the latest round of Basel III reforms.
The decision follows OSFI's previous one-year deferral of capital floor changes. The amendment requires banks to calculate more loan book risks using standardized models rather than internal methods. This can lead to higher risk-weighted assets and increased capital requirements, potentially making lending more expensive.
OSFI Superintendent Peter Routledge emphasized the agency's commitment to implementing Basel III reforms fully but acknowledges the uncertainty surrounding the timing of implementation in other jurisdictions. By delaying the capital floor changes, Canada's banks will benefit from a collective savings of C$24 billion in surplus capital, according to Bloomberg Intelligence analysts.
The move suggests that OSFI may also consider reducing the domestic stability buffer, potentially lowering banks' capital requirements and boosting lending activity in the event of an economic shock from a potential trade war with the United States.