Federal banking regulators are consulting on a series of proposed changes to the capital rules that could potentially free up funding for investment, enabling banks to supply more credit to the real economy.
In its latest quarterly release, the Office of the Superintendent of Financial Institutions (OSFI) launched a consultation on a handful of proposed revisions to banks’ capital requirements — such as reducing the risk weight for certain types of residential real estate exposures, lowering the risk weight on small- and medium-sized business exposures, and reducing the weighting for exposures to the Big Six domestic systemically important banks.
“This would decrease financial institutions’ regulatory capital requirements for loans to such borrowers,” OSFI said in the consultation paper. “These changes could potentially lead to increased lending to smaller businesses and make it cheaper for them to borrow.”
At the same time, proposed changes to certain market risk requirements, “would give financial institutions more flexibility and reduce regulatory burden,” OSFI noted.
In a briefing with reporters, Jacqueline Friedland, OSFI’s executive director risk assessment and intervention hub, said that the changes are intended to better align banks’ capital requirements with the risks of various activities, which could also free up capacity for banks to extend credit and support economic growth.
These proposals are out for a 90-day comment period to Feb. 19, and OSFI expects to finalize the rules by next September. Any changes to the actual capital rules would take effect for fiscal 2027, the regulator said.
Alongside the proposed changes to the banks’ capital rules, OSFI also said that it’s continuing to modernize its rules and guidance by scrapping another 32 sets of regulatory guidance by the end of the year. As a result, the total number of documents eliminated by the regulator since it began a streamlining initiative 18 months ago will rise to 52, which amounts to 600 pages of red tape that are being eliminated.
Additionally, the regulator noted that changes to certain parts of the capital rules for property and casualty (P&C) insurers take effect on Jan. 1, 2026. It also published a report detailing its findings from the first round of standardized reporting on climate risk by the Big Six banks and four internationally active insurers.