Canada cuts capital buffer for banks, suspends mortgage stress test change

TORONTO, March 13 (Reuters) - Canada is reducing the amount of capital lenders must hold to guard against risks to help them supply credit to the economy in response to the impact of the COVID-19 pandemic, the financial regulator said on Friday.

The Office of the Superintendent of Financial Institutions (OSFI) will lower the Domestic Stability Buffer by 1.25% to 1%, effective immediately, it said in a statement on its website, reversing a December increase to the buffer to 2.25%, which was set to take effect on April 30.

OSFI is also suspending a consultation on a change to a mortgage stress test that would have shifted away from the Bank of Canada’s published rate based on banks’ advertised rates, to actual market rates, which tend to be lower, to determine the minimum qualifying rate for low-ratio mortgages.

The Canadian Department of Finance, which said a similar change to mortgages with downpayments of less than 20% would take effect on April 6, has also suspended that plan, OSFI said, adding the central bank’s published rate will remain the benchmark. (Reporting by Nichola Saminather in Toronto Editing by Jonathan Oatis and Matthew Lewis)