Canada’s Big Six banks closed out the fourth quarter with hefty profits despite tariff pressure and economic uncertainty weighing on consumer borrowing. Yet lenders continue to sit on billions in excess capital that could be deployed into the economy, with sluggish loan growth and CET1 ratios—a measure of a lender’s ability to absorb losses—holding well above regulatory minimums.

Cushy capital: Ahead of earnings, analysts expected CET1 ratios to hold steady, and the Big Six largely delivered, averaging 13.6 per cent this quarter—more than two percentage points above the Office of the Superintendent of Financial Institutions’s (OSFI) 11.5 per cent requirement. Capital levels have climbed to historic highs, from 9 per cent in 2014 to 13.7 per cent in the third quarter of 2025, even after a period of heavy share buybacks, Scotiabank analyst Mike Rizvanovic said in a note. That could be intentional, former Bank of Canada deputy governor and senior fellow at the Centre for International Governance Innovation, Timothy Lane said in an interview. Banks may be “deliberately wanting the [capital] cushion” to pursue acquisitions or remain “cautious” against shocks in an uncertain economic environment. Lowering capital through more aggressive lending is possible, he pointed out, but it would likely require narrower margins, something banks are reluctant to do because it might “have a negative impact on their overall profitability.” 

Weak borrowing: The fourth quarter was marked by sluggish loan growth compared to last year, as consumers grappled with persistently high costs and interest rates. OSFI data underscores the slowdown: loans grew merely 0.9 per cent in the first two months of the quarter, a stark contrast to the double-digit rates seen in prior years. Lane said that while capital may be under-deployed, the issue is largely demand-driven.“It’s not strictly because the banks are not willing to lend,” he said, but because “borrowers are more reluctant to borrow.” He said Canada’s “oligopolistic” banking sector also plays a role, adding that challenges around productivity stem in part from the difficulty small- and medium-sized enterprises face in securing bank financing. “Banks are not really hungry enough to want to pursue the opportunities of lending to some of those small but expanding companies.” And while OSFI proposed lowering certain capital requirements in November to encourage lending, Lane said the effects won’t be felt until around 2027.

Profit hat trick: Earnings across the Big Six were once again driven by the familiar trio of capital markets, wealth management and U.S. banking operations. RBC led the pack, with a 45 per cent year-on-year jump in capital markets profit to $1.4 billion and a 32.5 per cent rise in wealth management earnings to $1.28 billion, pushing its fiscal year profit past $20 billion—a first for a Canadian bank. 

National Bank also delivered strong capital market-driven results, with earnings up 41 per cent to $432 million compared to the same period last year. At CIBC and BMO, U.S. operations provided a big boost to their net income. TD and Scotiabank were the only banks of the group to miss overall profit estimates, weighed down by restructuring charges. TD earned $494 million in capital markets, a 110 per cent rise from last year, while Scotiabank posted a 49.5 per cent jump in global banking and markets revenue and an 18 per cent rise in wealth management.

Brokering a boom: The blockbuster quarter in capital markets comes as little surprise, with M&A up 60 per cent in the year to November. A wave of megadeals and renewed investor confidence has fuelled the surge, placing RBC and BMO among the top three financial advisers over that period. That backdrop helped trading, underwriting and advisory desks across the Big Six post some of their strongest results in years. But the broader economic picture remains uncertain. “The economic outlook for 2026 remains muddied and far from spectacular,” Jefferies analyst John Aiken said in a note to clients, noting that despite last quarter’s improved credit picture, “the outlook remains challenged for both unemployment levels as well as loan growth.”

With files from Claire Brownell in Toronto 

Editor’s note: Timothy Lane is also senior fellow at the Centre for International Governance Innovation. This story has been updated.