Big Six Banks Stuck with $74 Billion Excess as Loan Demand Remains Low

The Office of the Superintendent of Financial Institution's decision to lower the domestic stability buffer (DSB) has freed up $74 billion in capital across Canada's largest banks.

This excess cash is making the Big Six banks optimistic about their future, but they're struggling to deploy it effectively due to an uncertain economy and weak loan demand.

Banks are working towards reducing their common equity tier 1 (CET1) ratio, which measures how much capital they have with respect to their risk-weighted assets. Currently, the Big Six banks have CET1 ratios of over 13 per cent, but they're aiming for a range of 12.5-13.5 per cent.

Royal Bank of Canada, for example, intends to work towards the middle point of this range after announcing its quarterly earnings results last week. The bank's CEO said it could return over $13 billion to shareholders in fiscal 2027 as part of its bid to reach a CET1 ratio target of 13 per cent.