Peter Routledge, who leads Canada’s bank regulator, fired back against criticisms that the country’s biggest lenders face onerous capital burdens, arguing that current regulations are instead in a “Goldilocks zone.”

Canada’s systemically important banks — its six largest lenders, including

Royal Bank of Canada

and

Toronto-Dominion Bank

— hold more capital above binding regulatory limits than their peers in the United States, Australia, the United Kingdom and Europe, according to a

report from the Office of the Superintendent of Financial Institutions

published Friday.

The banks as a group could lend as much as an additional $1 trillion without breaching non-binding regulatory minimums, Routledge said in an interview. Overall, he said, it means they’re well-capitalized, with ample capacity to lend, invest and still provide returns to shareholders.

A unique part of the Canadian system is the flexibility of the domestic stability buffer, he said. The so-called rainy-day fund currently adds 3.5 percentage points to minimum requirements, bringing the total Common Equity Tier 1 capital that banks must hold relative to risk-weighted assets to 11.5 per cent.

But if a lender’s capital drops below that level, he said, it doesn’t trigger automatic consequences, such as restrictions on paying dividends. Instead, it would lead to discussions with the regulator about how to return to good standing within a short period of time.

“That is why we contend that our system isn’t gold-plated for capital,” Routledge said. The banks’ industry association and stock analysts have said in the past that Canada’s high capital requirements impact the lenders’ ability to compete. “We have data in the report that shows we’re sort of in the Goldilocks zone relative to international peer jurisdictions.”

Industry complaints about Canada’s rules being more onerous than those of other jurisdictions — particularly the U.S. — intensified in 2024, prompting the Office of the Superintendent of Financial Institutions (OSFI) to press pause on increasing the “capital floor level” that changes how banks calculate lending risks and essentially leads to higher capital requirements. The regulator said last year that it is delaying those changes indefinitely and pledged to give two years’ advance notice before resuming an increase.

“That was a direct action we took to respect the industry’s points that, ‘Hey, maybe we’re being a little anti-competitive,’” Routledge said. “But on the overarching capital framework, we don’t think the evidence supports the notion that our system is gold-plated or disadvantageous on a competitive basis internationally.”

Friday’s report also shows that Canadian banks are highly profitable relative to international peers, another factor that adds to the resilience of the country’s financial system, the OSFI head said. The Canadian lenders’ median return on equity was second only to U.S. banks for the latter half of 2025, and the group has often been the most profitable on an international basis, the report showed.

“ROE first and foremost tells us there’s ample earnings as a line of first defence that’s there before capital,” Routledge said.

It’s not the domestic stability buffer that’s holding the banks back from lending more to small- and medium-size businesses, Routledge said, referring to a perennial complaint when it comes to Canada’s low-productivity economy. But, as capital rules shifted in the wake of the global financial crisis, risk rules began to make it easier to offer residential mortgages than corporate loans, he said.

OSFI is consulting on whether changes to the risk weightings associated with business loans could be adjusted to spur more business investment. As one example, he said, the banks have proposed lowering risk-weighted asset density on loans to small- and medium-sized businesses to 40 per cent from about 55 per cent.

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“It’s not a game changer,” Routledge said. “It doesn’t, in our view, bring undue risk into the system, but it might help a little bit, and it might rebalance how capital is allocated within a bank.”

Bloomberg.com