OTTAWA — The federal banking regulator is holding the domestic stability buffer at 2.5 per cent as it says the economy continues its recovery and Canada's largest banks remain robust.

The Office of the Superintendent of Financial Institutions, which reviews the rate twice a year, raised it to its current level in June.

In making its decision, the regulator says systemic vulnerabilities such as household indebtedness and housing-related asset imbalances remain elevated.

The buffer, which was reduced to 1.0 per cent at the start of the pandemic, requires Canada's largest domestic, systemically important banks to build up a reserve when times are good that can be called on when needed.

The decision to keep the rate on hold follows a decision last month by the regulator to lift restrictions that prevented federally regulated banks and insurance companies from increasing dividends, buying back shares and increasing executive compensation.

The prohibitions were put in place at the start of the pandemic in response to fears about the economic turndown and the possibility of large numbers of people defaulting on loans.

This report by The Canadian Press was first published Dec. 10, 2021.

The Canadian Press