OSFI Data Analysis: Key Findings
Fiscal Years 2021–2025
This report examines key financial metrics for Canada's six largest banks — BMO, BNS, CIBC, National Bank, RBC, and TD — using regulatory data filed with the Office of the Superintendent of Financial Institutions (OSFI) for the period ending 2021-12-31 through 2025-12-31. The analysis focuses on how the Bank of Canada's rapid rate-hiking cycle affected funding costs, asset yields, margins, profitability, and capital adequacy across these institutions.
The most dramatic shift in the data is the cost of funding earning assets, which jumped from under 1% at fiscal year-end 2021 to above 4% at fiscal year-end 2022. This was driven entirely by the Bank of Canada's aggressive monetary tightening cycle. The overnight rate moved from its pandemic-era emergency low of 0.25% to 4.25% by December 2022 — a 400 basis point increase in a single year, one of the fastest tightening cycles in Canadian history.
The repricing flowed through multiple channels: retail and commercial deposit rate competition, wholesale funding markets (GICs, bankers' acceptances, covered bonds, senior unsecured debt), immediate resets on variable-rate funding instruments, and maturing fixed-rate funding renewed at substantially higher rates.
To understand the impact of rate changes, it helps to look at the scale of the balance sheets involved. Deposits are the primary funding source for all six banks and grew steadily over the period. Earning assets — the portfolio of loans, securities, and other interest-bearing instruments that generate revenue — also expanded. The earning assets to total assets ratio shows how efficiently each bank deploys its balance sheet toward income-producing uses.
Despite the quadrupling of funding costs, Canadian banks are structurally asset-sensitive — they hold more floating-rate assets than floating-rate liabilities. Large portfolios of variable-rate mortgages, HELOCs, commercial lines of credit, and floating-rate business loans reset almost immediately with the policy rate. Meanwhile, a significant share of deposit funding — particularly low-cost chequing and operating accounts — repriced slowly or not at all. This created a widening spread.
Additionally, banks hold large balances of non-interest-bearing liabilities — equity capital, demand deposits, and float — that earn the prevailing rate on the asset side while costing nothing. When rates moved from near-zero to above 4%, the earnings power of this "free funding" base increased dramatically.
The net interest margin data confirms this: margins expanded during the hiking cycle even as funding costs surged, because asset yields rose faster.
Despite the net interest income tailwind, return on assets declined for most of the Big 6 from 2022 onward and remained below 2021 levels through the study period. This apparent contradiction is explained by several factors.
First, fiscal 2021 ROA was artificially inflated by massive releases of provisions for credit losses (PCLs) that had been built up during the pandemic. These reversals flowed directly to the bottom line. Starting in 2022, that tailwind disappeared and PCLs normalized — then climbed as higher rates put pressure on borrowers, particularly in consumer lending and residential mortgages.
Second, operating expenses grew meaningfully through the period, driven by wage inflation, technology investment, and general cost pressures. The margin expansion on the interest income side was partially eaten by the cost side.
BMO and TD were the only banks whose ROA did not decline in fiscal 2022. In both cases, the explanation lies in large, non-recurring items that boosted non-interest income rather than in superior operating performance.
BMO entered into interest rate swaps to mitigate the impact of rate changes on the goodwill and fair value of its pending Bank of the West acquisition between announcement and closing. When rates surged through 2022, these swaps generated approximately $4.7 billion in pre-tax mark-to-market gains, recorded in non-interest revenue in Q4 2022. On an adjusted basis (excluding these gains), BMO's EPS increased only approximately 2% year-over-year.
TD sold 28.4 million Charles Schwab shares for approximately US$1.9 billion to finance its acquisition of Cowen, generating roughly $1 billion in gains and reducing its Schwab ownership from 13.4% to 12.0%. Additionally, TD de-designated certain interest rate swap hedging relationships and reclassified the contracts into its trading book, recognizing large gains from rising rates through non-interest revenue without marking down the bond and loan portfolios those swaps had previously hedged.
| Bank | Non-Recurring Item | Approximate Impact |
|---|---|---|
| BMO | Mark-to-market gains on interest rate swaps hedging the Bank of the West acquisition | ~$4.7B pre-tax ($3.3B after-tax) in Q4 2022 |
| TD | Sale of Charles Schwab shares to fund Cowen acquisition | ~$1B in gains (US$1.9B gross proceeds) |
| TD | De-designation of interest rate swap hedges; gains recognized through trading book | Significant but not separately disclosed |
Despite the earnings volatility, the Big 6 maintained strong capital positions throughout the period. CET1 ratios remained well above the regulatory minimum of 7% (4.5% plus the 2.5% capital conservation buffer), with the additional 1% D-SIB surcharge applicable to all six banks. This capital strength provided a buffer against rising credit costs and supported continued dividend payments and share repurchases.
The OSFI data tells a coherent story once the various layers are disentangled:
1. The funding cost spike was real and mechanically driven by the Bank of Canada's 400 bps of rate hikes in 2022.
2. Net interest income was supported, not harmed, by rising rates due to the banks' structural asset sensitivity and the "free funds" benefit.
3. ROA declined anyway because the 2021 baseline was inflated by PCL reversals, and from 2022 onward, normalizing and rising credit costs plus operating expense growth more than offset the net interest income gains.
4. BMO and TD's 2022 ROA resilience was attributable to large, non-recurring non-interest income items — acquisition-related hedging gains and asset sales — not to superior operating fundamentals.
5. Stripping out these one-time items, all six banks followed a consistent pattern of declining ROA from the 2021 peak, providing a cleaner and more comparable basis for cross-bank evaluation.
6. Capital adequacy remained strong throughout, with CET1 ratios well above regulatory minimums, demonstrating the sector's resilience through the rate cycle.