Taking a Break: OSFI Puts Basel III Output Floor Implementation on Indefinite Hold

On February 12, 2025, the Office of the Superintendent of Financial Institutions (OSFI) announced that it would defer the planned implementation of a 72.5% Basel III output floor in Canada until further notice.

Key Highlights
-- OSFI announced an indefinite hold on the planned implementation of a 72.5% Basel III output floor for Canadian banks, given ongoing concerns about the commitments of other jurisdictions to the Basel III 2017 reforms and considerations about competitive balance in the international banking system.
-- The output floor will now remain at 67.5% for the affected banks until further notice. In addition, OSFI is expected to notify these banks at least two years prior to resuming the implementation.
-- In contrast to our initial expectations, we now view a partial adoption of the output floor and/or a multiple-year delay in its adoption in Canada as more likely. Despite potential economic costs, the full implementation of this standard would strengthen Canadian banks' ability to withstand financial shocks.

"Despite the reversal in OSFI's planned implementation of the output floor, we expect Canadian banks to continue managing their capital prudently, without taking excessive risk," said Shokhrukh Temurov, Vice President, North American Financial Institution Ratings. "This is particularly critical in the current environment of heightened geopolitical risks and uncertainty about U.S. policy changes, including tariffs, which could have negative repercussions for the Canadian banking sector."