Regulators push Canada’s giants to share gains with smaller firms and the real economy
Canada’s biggest risk may be that its capital and technology keep pooling at the top.
According to Bloomberg, Bank of Canada Senior Deputy Governor Carolyn Rogers warned that future inflation risks could rise if artificial intelligence investment stays concentrated in big companies instead of spreading to small- and medium-sized businesses.
Large firms can make “big bets on technology,” she said, but Canada’s “ailing productivity” is more likely to improve if AI adoption broadens and competition increases.
Rogers cautioned, “You also don’t want things concentrated in big firms. That’s not good for productivity either,” adding that if gains stay in those firms, they are unlikely to “translate to gains across the economy.”
The stakes are high because the business base is overwhelmingly small.
98 percent of Canadian businesses in 2023 were “small,” with one to 99 employees, while “large” firms — only 0.3 percent of businesses, each with 500 or more employees — employ over a third of the population and dominate capital investment.
Yet Bank of Canada Governor Tiff Macklem said there is little evidence of broad AI uptake among Canadian firms, according to Bloomberg, suggesting that potential productivity gains remain largely unrealized.
This concentration risk extends to the financial system.
Peter Routledge, head of the Office of the Superintendent of Financial Institutions, pushed back against claims that Canada’s capital regime is too heavy, arguing that big banks are in a “Goldilocks zone” rather than saddled with “gold-plated” requirements.
A new OSFI report cited by Bloomberg showed that Canada’s six largest lenders — including Royal Bank of Canada and Toronto-Dominion Bank — hold more capital above binding limits than peers in the US, Australia, the UK and Europe.
Routledge said they could collectively lend up to an additional $1tn without breaching non-binding minimums, while remaining able to invest and pay shareholders.
Routledge highlighted the domestic stability buffer as a key feature.
This “rainy-day fund” adds 3.5 percentage points to minimum capital requirements, bringing the total Common Equity Tier 1 ratio to 11.5 percent.
Dropping below that level does not automatically trigger dividend or other hard restrictions; instead, it prompts talks with the regulator on how to return to target.
He said this flexibility underpins OSFI’s view that the system is not anti‑competitive, even after the regulator paused planned increases to the “capital floor level” in response to industry complaints.
For the real economy, the focus is on whether capital rules support lending to productive businesses.
Routledge said the domestic stability buffer is not what holds banks back from lending more to small- and medium-sized firms.
Instead, post-crisis risk rules made residential mortgages more attractive than corporate loans.
OSFI is now consulting on changes to risk weights.
One proposal from banks would cut risk‑weighted asset density on SME loans to 40 percent from about 55 percent.
Routledge called it “not a game changer” but said it could slightly rebalance how banks allocate capital without adding “undue risk.”
