Canada financial regulator suspends Basel bank capital increase amid tariff threat

By Nivedita Balu

TORONTO, Feb 12 (Reuters) - Canada's banking regulator said on Wednesday it would pause increases to banks' required capital levels, citing economic uncertainty and slow progress by other countries in implementing the rules designed to make the banking system stronger after the 2008 financial crisis.

Superintendent Peter Routledge of Canada's Office of the Superintendent of Financial Institutions said the decision comes amid economic uncertainties due to U.S. tariff threats.

"We're in a period of economic uncertainty, and that'll flow through the financial system. We wanted to ensure that the systemically important banks could capital-plan over a longer time frame," Routledge said in an interview.

OSFI in July had already delayed by one year key rules on capital floor levels, which are part of the global Basel III accords to increase banks' financial stability, following regulators in other regions. The suspension is now indefinite, Routledge said.

OSFI said the output floor, which acts as a backstop to ensure a minimum level of capital, will remain at 67.5% of a bank's assets and exposures weighted according to risk. The regulator will also notify banks at least two years prior to resuming an increase in the output floor.

Routledge said the regulator is also ready to adjust the domestic stability buffer, an additional capital requirement for large banks to ensure resiliency.

The reforms set by global banking rulemakers require Canadian banks to calculate risks in their loan books using a standardized model.

The "Basel III" standard was agreed after the 2007-09 global financial crisis and formed by the Basel Committee on Banking Supervision convened by the Bank for International Settlements in Basel, Switzerland. Basel III includes numerous capital, leverage and liquidity requirements.

Regulators across the world have worked for years to implement many of those standards, and the "endgame," agreed in 2017, is the final iteration.

Routledge said Canada had implemented many of the reforms at a faster pace than other countries following the 2017 Basel committee meeting.

"However, the progress is slower than we anticipated. We choose not to extend our lead any further ... we are quite happy to wait for peer signatories to catch up to us," he said.

The output floor was expected to be revised to 70% in fiscal 2026 and 72.5% in fiscal 2027.