New capital rules could accelerate business lending and invigorate Canada's economy
Canada's largest banks possess the capacity to extend nearly $1tn in additional loans while remaining above current capital minimums.
The Office of the Superintendent of Financial Institutions (OSFI) has proposed regulatory changes designed to unlock this substantial lending potential.
OSFI head Peter Routledge stated at a September event that “Banks could make nearly $1tn in additional loans or other extensions of credit … and remain above current capital minimums,” calling this a material amount relative to Canada's $3tn economy.
He argued that this capital cushion—built up since the 2008 financial crisis—should serve as a catalyst for national prosperity rather than merely a safeguard.
Last Thursday, OSFI announced targeted rule modifications that could free up capital for investing and lending.
The regulator lowered the risk weight for small and medium-sized business loans from 85 percent to 75 percent, reducing the capital banks must hold in reserve against these assets.
Risk weights function as regulatory scores indicating loan default probability; higher weights require larger safety buffers.
The regulator also adjusted real estate loan treatment.
OSFI reduced the base risk weight for low-rise residential real estate to 130 percent from 150 percent to "better reflect the lower risk nature of low-rise residential builds."
Loans for projects with pre-sales equal to or greater than 75 percent would receive substantially lower risk weights.
Jacqueline Friedland, executive director of OSFI, said at a press conference, “Changes are being made so that the capital better reflects the risks.”
She explained that the targeted changes could give financial institutions more flexibility to free up capital for investing and lending, while also supporting competitiveness and maintaining stability.
OSFI launched a 90-day public consultation on these proposals, inviting banks to demonstrate how they would deploy this capacity without introducing excessive risk.
The changes arrive as Canada faces challenging geopolitical circumstances and a months-long trade dispute with the United States—conditions where expanded business lending could shore up economic performance.
The regulatory shift coincides with federal efforts to intensify competition in the financial sector.
Ottawa's latest budget promised measures to support alternative institutions competing against the Big Six banks, including fee reductions and simplified account switching.
The government intends to publish draft regulations by spring 2026 prohibiting investment and registered account transfer fees, currently averaging $150 per account, whilst also facilitating federal and provincial credit union expansion.
