RBC Facing Pressure from Canada’s Regulator
Royal Bank of Canada (RBC) is facing pressure from Canada’s banking regulator to increase its capital levels. The Office of the Superintendent of Financial Institutions (OSFI) has been tightening its regulations on capital requirements for banks in recent years, and RBC is feeling the effects.
OSFI’s New Regulations
OSFI is the regulator responsible for overseeing the safety and soundness of Canada’s banking system. It has been increasing its capital requirements for banks since 2018, when it introduced the Domestic Stability Buffer (DSB). The DSB is a capital buffer that banks must maintain in order to protect against potential losses.
In 2020, OSFI increased the DSB from 1.5% to 2.5%. This means that banks must now hold more capital in reserve in order to meet the regulator’s requirements. This has put pressure on banks like RBC, which have had to increase their capital levels in order to comply with the new regulations.
RBC’s Capital Levels
RBC is one of Canada’s largest banks, and it has been feeling the effects of OSFI’s new regulations. The bank’s capital levels have been increasing in recent years, and it is now facing pressure to further increase its capital levels in order to meet the regulator’s requirements.
RBC’s capital levels are currently at 11.2%, which is above the minimum requirement of 10.5%. However, the bank is still facing pressure to increase its capital levels further in order to meet the regulator’s new requirements.
RBC’s Response
RBC has been responding to the pressure from OSFI by increasing its capital levels. The bank has been raising its capital levels through a combination of internal capital generation and external capital raising.
RBC has been generating internal capital by reducing its dividend payments and increasing its retained earnings. The bank has also been raising external capital by issuing new shares and selling assets.
Impact on RBC’s Profitability
The increased capital requirements have had an impact on RBC’s profitability. The bank’s return on equity (ROE) has been declining in recent years, as the increased capital requirements have reduced the bank’s ability to generate profits.
RBC’s ROE was 11.3% in 2018, but it has since declined to 9.3% in 2020. This decline is largely due to the increased capital requirements, which have reduced the bank’s ability to generate profits.
RBC’s Future
RBC is facing pressure from OSFI to increase its capital levels, and the bank is responding by raising its capital levels through a combination of internal and external capital raising. This has had an impact on the bank’s profitability, as the increased capital requirements have reduced the bank’s ability to generate profits.
It remains to be seen how RBC will respond to the pressure from OSFI in the future. The bank will need to continue to increase its capital levels in order to meet the regulator’s requirements, but it will also need to find a way to maintain its profitability in the face of the increased capital requirements.