OSFI just told Canada's biggest banks they have $1 trillion in unused lending capacity. That's enough to fund every SME dream, startup pitch, and business expansion plan in the country several times over. So why does your local entrepreneur still hear "no" more often than "yes"?
For years, Canada's banking lobby has argued that capital requirements were strangling its ability to compete globally. OSFI's new benchmarking report, released February 13, 2026, methodically dismantles that narrative with actual data.
Canadian systemically important banks hold capital surpluses that exceed their American, British, European, and Australian peers. The aggregate CET1 ratio sits at 13.7%, a full 220 basis points above OSFI's 11.5% expectation, including the Domestic Stability Buffer.
That surplus represents approximately $60 billion in excess capital. Scale that against risk-weighted assets, and you get Superintendent Peter Routledge's eye-popping number: banks could extend nearly $1 trillion in additional credit while remaining above regulatory minimums.
The Goldilocks Defense
Routledge coined a memorable phrase for the current framework: the "Goldilocks zone." Not too restrictive, not too permissive. Canadian capital rules land roughly where international norms cluster when you account for binding versus non-binding buffers.
The Domestic Stability Buffer, unique to Canada, operates as a usable cushion. Unlike the U.S. Stress Capital Buffer or European equivalents, breaching it doesn't trigger automatic distribution restrictions. This flexibility actually gives Canadian banks more lending headroom than the raw ratio comparisons suggest.
The SME Problem Nobody Wants to Solve
Here's where the report gets interesting for anyone who cares about economic productivity. Routledge acknowledged what lending executives have long understood privately: post-2008 capital rules created a structural bias toward residential mortgages over business lending.
The math is brutal. Banks hold roughly 10% capital against uninsured residential mortgages but 50-60% against corporate loans to small and medium enterprises. When your capital allocation framework makes it five times more expensive to lend to a growing business than to a condo flipper, you get exactly the economy you'd expect: asset-heavy, productivity-light.
OSFI is now consulting on changes that would lower SME risk weights from approximately 55% to 40%. Routledge was refreshingly candid: "It's not a game changer. But it might help a little bit, and it might rebalance how capital is allocated within a bank."
What This Means for Lenders and Fintechs
For traditional banks, the subtext of this report is unmistakable. Your regulator just told the world you have ample capacity and profitability. The excuse of regulatory burden has been data-checked into oblivion. The question now is strategic: will you deploy that capacity into business lending, or will you wait for fintechs and alternative lenders to claim that territory?
For fintechs and alternative lenders, the opportunity is significant. Banks may have the capital, but they don't always have the operational infrastructure, risk appetite, or customer experience to efficiently serve SME borrowers. That gap is where technology-driven lending models can thrive.
The Profitability Elephant
One data point deserves particular attention: Canadian banks report the highest median return on equity among international peers. This isn't a stressed system scraping by under oppressive regulation. It's a highly profitable sector sitting on unused capacity while complaining about the rules.
OSFI's benchmarking exercise serves as a subtle but unmistakable challenge. The framework allows for more lending. The balance sheets can support it. The economy needs business investment. So what's the holdup?
The Strategic Question
The consultation on risk-weight changes closes February 18, 2026. Final guidelines are expected by September, with implementation in late 2026 or early 2027.
For lending executives, the time to model expanded commercial portfolios is now. For fintech operators, the window to position yourself as the SME lending partner of choice is open. For everyone watching Canadian financial services, the question Routledge posed is worth sitting with: "To what extent is the way we allocate bank capital driving economic decisions, and are those decisions helpful to the long-term prosperity and productivity for Canada?"
Sometimes, the most important regulatory reports don't announce new restrictions. They reveal that the capacity for change already exists, waiting to be used.