Canada’s banking regulator cut the domestic stability buffer to 3% of risk‑weighted assets, down from 3.5%, effective immediately. The change applies to the six systemically important banks – BMO, Scotiabank, CIBC, National Bank, RBC and TD – and is intended to free capital for new lending as Ottawa courts investment to revive growth, to support housing and export‑oriented sectors.

With the buffer lowered, the common equity Tier 1 (CET1) ratio for the top lenders falls half a point to 11%, while their overall CET1 levels sit between 13% and 14.3% as of April. The regulator, which reviews the buffer twice a year, had raised it by 0.5 point in June 2023 amid rising household debt and to temper risk as conditions tighten.

Even as banks continue share buybacks and higher quarterly dividends, the reduced buffer gives them a modest cushion to expand credit without compromising solvency. Investors will watch loan growth metrics for signs that the policy shift translates into tangible financing for consumers and businesses, a key gauge of whether the regulator’s tweak can sustain the economy’s rebound for the next reporting quarter.