Canadian Bank CEOs Report Resilience Amid Trade Tensions as OSFI Adjusts Capital Rules
Leaders of Canada's major banks reported cautious but resilient consumer and business behavior amid escalating U.S.-Canada trade tensions. While maintaining elevated capital buffers, executives noted that loan losses remain within expectations despite some stress in mortgage markets. Meanwhile, the federal regulator OSFI reduced capital cushion requirements to stimulate lending in key sectors.
Ottawa’s retaliatory tariffs on $28-billion worth of U.S. imports took effect early Tuesday, marking a significant escalation in trade tensions between Canada and the United States. In response to the shifting economic landscape, leaders of Canada’s big banks have reported cautious but resilient behavior from consumers and businesses, while emphasizing the importance of strong financial buffers.
National Bank of Canada CEO Laurent Ferreira stated that the current situation with the United States is not good. He warned against prolonged trade wars, citing negative impacts on investment and labor market conditions. To mitigate these effects, Ferreira suggested that the federal government should adjust tax regulations to allow business owners to avoid taxes if they reinvest proceeds from asset sales in Canada within 12 months.
Despite the uncertainty, Canadian banks are maintaining robust capital positions. Royal Bank of Canada (RBC) CEO Dave McKay said the bank is keeping its common equity tier 1 (CET1) ratio at 13.5 per cent, well above the Office of the Superintendent of Financial Institutions (OSFI) minimum of 11 per cent. McKay described this surplus as an extra buffer against possible effects of the trade war. He also noted that credit risk across clients has improved as businesses adjust to the uncertain environment by making more conservative investment and borrowing decisions.
Similarly, National Bank plans to maintain a CET1 ratio of 13 per cent by the end of 2027. Loan losses at Canadian banks have remained within lenders’ expectations since the U.S. initiated its trade war more than a year ago.
Scotiabank CEO Scott Thomson reported seeing some stress across mortgages, particularly in Toronto and Vancouver. However, he noted no significant issues in small business, commercial, or auto loan portfolios. The broader sentiment among executives suggests that while anxiety over potential loan defaults and pressure on consumers' wallets exists, the banking sector remains stable.
In June, OSFI reduced the size of the capital cushion required for Canada’s biggest banks. This regulatory change aims to free up billions of dollars for lending in critical sectors such as defence, infrastructure, and artificial intelligence. OSFI superintendent Peter Routledge stated that banks have been given clear capital planning certainty and flexibility to make commercial decisions under the new framework.