Impressed people still have steam. Hi, great, thanks.
Okay, ladies and gentlemen, we're gonna carry on. Very pleased to have Nadine Ahn , CFO of Royal Bank.
Thanks.
Nadine, thank you very much for coming back.
It's great.
Hopefully, we treated you well enough last year, but-
Yeah, no, it worked out really well, so I decided to come back, despite all the weather, fashion week, and what's going on.
Nadine, wanted to have your view in terms of the macro outlook, because the questions that I get on the Canadian banks these days are less about the specifics operating of the banks and just basically what's going on. So can you talk about what the bank's view is for the economic outlook for Canada and U.S., and tactically or strategically, how is the bank dealing with a bit of a bigger question mark than we usually have?
Yeah, I think that's one of the things. There's a lot of uncertainty, and that's why it's so important the way we think about managing our business overall and the diversification of our business and our revenue streams to really think about that long-term view, because you're seeing so much ebb and flow in the near term, and really think about how we manage our business overall through a cycle. So when you think about what's happening from the macro environment, you're starting to see the impact of rates happen through bringing down the inflation. I think both within Canada and the U.S., I mean, we didn't expect it to be a linear trajectory, so every time i t bumps in a particular month, I think there's a lot of focus. This is gonna be the time when rates have to move up again.
But you're starting to see it, starting to see it. You're starting to see the labor market slow. In Canada, it's a bit of a different construct, just because you do have the strength of immigration. So while you're still seeing job creation, you are seeing it not necessarily keep in line with what you're seeing from the number of immigration and the inflow of a population into Canada. You're starting to see wages come up, and so you're starting to see that slow down. In Canada, you've seen the contraction in GDP. I think part of the difference, though, between Canada and the U.S., and it's really a construct of how the slowdown is occurring. In Canada, we talked about a lot... I'm sure we'll talk a bit more about housing in the mortgage market.
You're seeing the credit price through a bit more quickly, and Canada is still sitting on a higher degree of savings. We're still sitting about in Canada, the benefit we have at RBC and being able to see that through our deposit franchise. Canada is sitting on about a surplus of 20% pre-pandemic levels. But you're starting to see the mentality of the Canadian culture, knowing that that mortgage refinancing is coming, you're starting to see a bit more slowdown from that discretionary spend. You're starting to see, but the lower cohorts are really holding on to that liquidity. In the U.S., it's a bit of a different construct. I think in Canada, you've got the closed system, the liquidity is still staying on the balance sheet. In the U.S., the consumer has a different degree of resiliency, right?
Because they've got that longer term of their largest debt. You're sitting on the 30-year term mortgage, so you're not seeing this slowdown as much through the consumer standpoint. You're seeing it more from the contraction in liquidity in the market. And people have talked about the fact that you've seen close to $2.5 trillion come out, really a reduction of the, not only the quantitative tightening, but also, the ability to take liquidity out of the market through the repo. And so you're seeing the slowdown come more through the contraction of credit-
Mm-hmm.
The reduction in supply of funding, as opposed to through the consumer. And so you've got a bit more of a challenge, I think, in the U.S. You're starting to see the slowdown, but it's manifesting a bit differently. And so then when we think about the bank, in aggregate, we're seeing that the strength overall of the consumer, we're seeing that the reaction as it relates to credit, we've still got the opportunity for the growth. And we're seeing, given our diversified model, where you think about whether we have it in, and we can talk about a bit more on the retail side, but also across both our capital markets business, our wealth management business.
And you think about where our exposure is in the U.S., really, that we've had the advantage of being more on the capital markets side and some of the things we're doing there and the growth we've had in wealth management. So I think in Canada, you're expecting to see that slowdown. That's why we're still forecasting that the anticipation that we will start to see the rates come down towards the latter half of 2024. And it's going to do with this job overall, but it's really the health of the consumer in Canada, the pricing through the credit much more quickly. U.S., a bit more of a different dynamic in terms of how the slowdown is occurring.
I'll let the audience get into residential mortgages in terms-
Mm-hmm.
- of credit risk, but you touched on immigration in Canada as it, it's a very interesting dynamic. Can you talk about what the implications of that are for housing, residential mortgage growth, and if you're able to, talk about the underpinning conflict where there's some populist movement about immigration-
Mm-hmm
... not being supported with, household builds?
Yeah, I think in Canada, it's really two components, right? You touched on the fact of immigration, which is for Canada's growth story, a big contributor to our GDP, and it is really an issue as it relates to housing around supply, demand.
Mm-hmm.
And so that is keeping housing prices at a stabilized level. And so for people with equity value in their home, that's a great thing.
Oh, good.
However, for those trying to get into the housing market, obviously, that's an affordability issue. So that's the socioeconomic issue. I think when you couple that with the fact of what you're seeing on the liquidity side, you're seeing, in particular, what we've noticed, is the surplus liquidity that greater than 20% still sitting, that's really sitting in the low cohorts actually, from both a FICO Score standpoint as well as a balance size. So you're sitting with a higher degree of liquidity to start to think about managing that payment stream. When you think about the tail risk, if you will, around mortgage or housing risk as it relates to more banking sector, then the issue really comes down to what's the creditworthiness of your book? What is the health of the balance sheet of the consumer?
I think we are entering a cycle where in Canada in particular, there was a disbursement of the stimulus through to pretty much the full stack. And so you're sitting with a healthier consumer going into a period of increased cost as it relates to housing. For our book in particular, you know, you've got a very healthy credit book overall. You have about a loan-to-value ratio on average, about 50%. You have a FICO score that's north of 800, and so what you're really looking about then is how are they gonna manage that payment stream? And we've talked a lot about the different product constructs in Canada, in particular, on the variable rate side. For us, a larger proportion of our book is in fixed rate.
For the variable rate side, 75% or so trigger rate, and what that means is we don't have a negative pricing product. As a result of that, you know, we've had a lot of our clients, given that surplus liquidity, be able to pay down and/or be able to adjust their payments. Then the question really is around the fixed book, and that's kind of a later evidence of whether we're gonna start to see how the credit plays down. And so if you think about if rates do come down, like are anticipated, for people, that's about a 25% payment increase. If rates stay up, you're talking about 35%. And what we've seen in addition to the surplus liquidity is we have seen some wage inflation.
So the question really is: How are we gonna manage through this period in through to 2025 and 2026? And when you look at what that tail risk in particular for our book is, that's if you take a, an LP that's north of 85,700, that's about 1% of our book.
Mm-hmm.
So I think it's manageable credit standpoint. Socioeconomic impact really comes down to the supply and demand. And I think one of the things that has been an advantage in Canada as it relates to OSFI and our regulator is there's a separation there from the church and state. It is not political environment from the regulator standpoint, but they're focused really on managing the safety and soundness of the financial sector as it relates to the risk of the mortgage product. And so some of the things that you may have heard them talking about are really, are we happy with negative amortizing mortgages? Are we happy with the fact that is that sending the signal through to the consumer? And so that's where their focus is. The supply demand question is a political one.
Mm-hmm.
Right? And so I think what you're finding is there's been a bit of a mix between confusion of the socioeconomic, the housing supply-demand against the broader mortgage market, and really, they are two separate things. For us, you know, it's gonna be a question then also, what does that mean from a volume growth standpoint? And I think we have the confidence given, you know, our, our client base to continue to have that, that premium growth overall, and our ability to continue to widen the aperture as it relates to our client acquisition, which has been quite strong. So I think that's always to keep in mind those two dynamics, and I think if you think about what the actual risk is as we look forward for the mortgage, I think it's manageable.
It's not that, you're not seeing the impact of clients, but it's having the effect that they want to see as it relates to slowing down the broader economy.
Thank you. Sorry, that was very expansive. And you ticked off all my-
Oh, sorry.
No, that was great. So, to change tacks, wanted to congratulate you on the Competition Bureau's approval of the-
Mm-hmm
... HSBC Canada acquisition, and I'm not expecting comment on this, but from my standpoint, that was the highest degree of risk. Not that I felt that it was likely to be denied, but that to me now, the rest of the process is almost ticking boxes. But aside from that, can you talk about what, you know, what prompted you to pursue HSBC? What does it bring to Royal, and whether or not, because of the approval process and delays, what you've been able to do and what you hadn't been able to do to prepare for the acquisition integration?
I think the approval by the Competition Bureau was definitely a positive step forward in getting the regulatory approval, and I think that it just reflects the competitive environment with Canada. So I think the opportunity for our Canadian client base is quite significant. This is quite a coveted asset for us in terms of if you think about an opportunity to acquire an asset in your home market, to be able to have the cost synergies, to have the quality of asset with the type of credit discipline that is part of our cultural overall, the ability to have connectivity to that global client base, which we've been already building a number of relations through in terms of we've talked about the importance of immigration to Canada.
This is something that is highly accretive for us, not just from a high ROE business, so upon close will be immediately, but also if you think about the synergized earnings. To be able to take high quality asset, bring it onto our systems, and be able to have confidence that we still continue to have as it relates to the cost synergies. So we're looking to take out roughly 55% of HSBC Canada's cost base, still delivering on what we communicated as, as part of the announcement around the CAD 740 million, but, you know, relates to the overall cost. And so we've also got opportunities that we haven't really discussed as we're looking through, through the revenue synergies. It's bringing products to Canada, like multicurrency accounts.
I think HSBC has been known globally, in relation to that product, and now we're able to bring it not only to our RBC clients, but to continue to create that connectivity with HSBC clients, which is so important. They have huge strength in areas of trade finance and their global payments with our payment system. So those elements as well, we're looking to bring to Canada. And what we get to bring in terms of you think about our product offering, HSBC Canada in particular, given they were managed under a global construct, we get the same level of investment we have in Canada from their product suite. So we're able to bring the fact that we have the number one products in Canada to them as well. So it's going to be highly accretive from an ROE standpoint.
Definitely looking to deliver on those, the earnings of CAD 1.4 billion fully synergized that we talked about in the EPS accretion. So we're really excited about it. It is a close and convert, and so this is something that is not necessarily done a lot, particularly with the bank. This is part of the conversations we actually had with the regulators on the timeline we're working with. That is a lot of heavy lifting, plus the fact that we're doing some of these build outs, pulling forward some of the enhancements. So we are. But the benefit of that is then that you've converted it, we can. Now, I make this sound easy. I know our CTO would be quite ready to wring my neck given the amount. So it is requiring lift from the organization.
It's requiring a lot of focus, but I think the benefits that you're going to see is the fact that we're able to capitalize on those synergies much faster as a result of that and build up the product suite more broadly. So this is, you know, hugely exciting for us. A lot of lifting, but really happy to have landed such a strong, well-run Canadian asset. So we're looking forward to it.
Well, don't deny the opportunities, but I guess one of the downside from your area of expertise is the impact this is going to have pro forma on capital. Now, I know Royal has come out and stated that post-close CET1 ratio will be above 12%. Can you talk about your, I guess, comfort level in that statement? And, you know, what do you think a normal growth rate should be for Royal CET1, and how quickly you're expecting to get to that level?
Yeah, we've been building capital in anticipation. Obviously, the close to happen early next year. We're sitting at our 14.1% and have a huge degree of confidence given the strength of our high ROE premium businesses. So we're doing great in terms of our capital and internal capital generation. We do have to drip on in order to ensure that we hit that capital level, and we are still confident we're going to be north of that 12% upon close. And then I think as it relates to further capital generation, as I mentioned, we're going to be adding an accretive ROE business with the synergized earnings.
So given the strength of our, of our other business and their premium growth, there's no concern around our ability to continue to generate pieces of capital, and then be able to continue to invest organically in our businesses, which is our primary area of focus. You know, we make sure that from a dividend standpoint, we grow that in relation to our earnings and manage it in our 40% to 50% payout ratio. And, you know, we are a very prudently run organization, and so we do like to keep a buffer as it relates to capital in terms of time of stress. And then, you know, there's always going to be opportunities to further look for M&A capital.
So as it relates to, you know, our outgoing capital trajectory, OSFI has communicated that they are going to be moving to a 4% domestic stability buffer, which ratio up to 12%. They've taken us now to 11.5, so we are sitting well north of that, obviously, in anticipation of the acquisition. And so as we get to that point, when they announce the remaining 50 basis points, I think we have full ability to build our capital, as I said, given the strength of our franchise, to be able to meet the expectation, and we will keep it over that just to manage prudently as we continue to make sure we have sufficient capital for growth.
Pause at this point and see if there's any questions from the audience.
Yeah. My IR person's not allowed to ask me questions. It's a rule we have in terms of here.
Nadine, one of the things that your CEO, Dave McKay, has been quarters is the expenses, the headcount, and being quite open with the fact that potentially overshot in terms of what was being built out. Can you talk about what you as an organization are doing to control expenses? You're talking about headcount reduction, and what your goals and aspirations are, and do you think you can get back to a positive operating leverage before we get the synergies from HSBC?
Yeah, I, I think we've been quite transparent. We, we talked a bit about the uncertainty of the economy, and there, there's definitely been a lot of rapidity and movement, and as it relates not to just changes in the economy, but also in terms of changes in the employment as well. We did, we did operate in an environment towards the end of last year where we saw attrition rates double from the normal attrition rate and almost pretty much triple from where we would have seen them at the COVID lows. And you can imagine an organization of this size with the volume generated by our clients, we were trying to keep up with that pace. In addition, building up our, our tech space as well, in anticipation of having to bring on more resources for HSBC Canada.
And then everything, the music stopped, right? The tech industry started slowing down and laying off. Employee sentiment quickly changed. People were more concerned with losing their jobs than moving away from their jobs. And so we ended up having, you know, an overhang in terms of where we had deployed resources, given some of the slowdown in volumes that we anticipated from the mortgage side. So that was where we pivoted, right? We pivoted in Q2. We commented on that on the call, and in Q3, we really slowed down hiring and went to look to absorb the people. And that's where you saw our headcount come off, primarily through attrition and not letting hiring, and that was primarily in the retail bank.
So we saw our headcount come off by about 2%, in that area, and we've communicated that we're looking for further reductions in the fourth quarter of 1% to 2%. The other area we focused on, obviously discretionary. We came off of COVID lows. We've seen inflation build further to quite an extent in terms of some areas like marketing, et cetera. And so we've been really focused on making sure that we are a bit more vigilant in terms of when we do things like travel, when, where we spend on marketing, et cetera. So we've been able to cull that back as well.
This is good housekeeping things at the end of the day, and so the 1% to 2% is really looking at our workforce and saying, you know, where do we have individuals that maybe are not contributing as much in areas where we need to? And that's really where that's coming from. There's hopefully more opportunity for us. I think we've been very focused on where we've been improving productivity, where we've been improving efficiency. When you look at where we've been spending, you know, a lot of the growth has actually come out of the U.S. And when we look at Canada, for Canada, across all of our businesses, including wholesale, which obviously has a higher efficiency ratio, we're still 50%. So it's an efficient business.
Doesn't mean we can't be better, and we are probably spending a bit more even in Canada, in anticipation of HSBC integration. While we are putting the costs related to the integration in the center, we've pulled forward some of that application development we talked about. So we are spending a bit more right now as it relates to some of the build-out we're doing for HSBC. When you look at the spend we've been doing in the U.S., you know, we've got our capital markets business, our wealth management business, and they're about 70% of our revenues. And so capital markets, we've been investing in tax management, we've been investing in talent, we've been investing in our global markets business to move up market share.
And City National, and we, we've talked about this, you know, in terms of we've tripled the size of the bank, and we've been working on replatforming it for the next leg of growth. That does not mean there's not opportunities to improve efficiency. And I, I think as I've been commenting today, you know, you... It's very challenging to look for efficiency opportunities when you're running to keep up with volume. And so now is an opportunity in the U.S. in particular, to identify those areas, and that's what we've been working through with City National as well. Where are there pockets for efficiency? And I, and I think as we look into even Canada, post the acquisition of HSBC, there's further opportunity, you know, from, from a structural basis on, on our cost base. So there's, there's more that we're going to be doing.
The focus for 2024 is positive operating leverage, and we feel that we've, you know, bent the curve as it relates to cost increases. As we've communicated for, you know, fourth quarter, we're looking for that to be in the mid-single digits from a year-over-year growth trajectory. We're going to continue to focus on it. I think that we've got the strength of our revenue base, but you always have to prepare for the day where that's going to come off. Recognizing further potential headwinds as we slow down the economy, that's something we've got to focus on.
One of the factors that had been causing a lot of cost inflation outside of inflation had been regulatory costs and investment in technology. Is that something that continuing on a similar trajectory, or are those leveling off a little bit to give you a bit of a help on operating leverage?
We've consistently invested in our business. I think that we've been at the forefront in terms of our technology build-out. We looked to spend money on innovation. We were very early on with things like AI and Borealis and our AI-generated trading platform. This is something that we continue to focus on investing. You have to have money to continue to be able to focus on investing and innovating in the financial services space. We built out a lot of products for our clients. We've got, you know, leading... And that's why we'll be able to attract a lot of investment advisors in the U.S. is because of the tools and the products that we've given them. We have to create capacity for that.
So if you think about our cost base overall, I think given our structural and absolute dollar level, we have enough money to be able to continue to spend on that. What we're doing is trying to bring it down from the levels that you're seeing it at today, and a lot of that is driven off of, you know, just increase in overall people and where can we get more efficient. So it is very important to continue to have money to invest. The key, though, really is, and this I get to say, sitting from the CFO seat in particular, is you have to ensure that you have the return on that investment, right? And the prioritization.
I think the challenge sometimes can be that... Because we've been so focused on investing, growing, and given our scale, which allows us to spend, you've got to make sure that you recognize where you're prioritizing for best greatest impact, right? And I think a lot of that discipline has actually come through with HSBC Canada, right? It's focused us, just given the amount of volume and resource lift that it's requiring, really focusing on greatest impact, building out the multi-currency, building out the trade finance capabilities, building out from a global cash management, investing in the U.S. and global cash in, in our cash management offering. It's, it's focusing the organization on where is for the greatest impact. I think that that was probably a discipline when revenues are good-
Mm-hmm.
may not be as much of a focus. And so I think even some of the start with the acquisition has allowed us to repivot and think through that plan.
When it comes to scale, the Canadian banks are very interesting because the world in particular has Canada and the U.S. very large balance sheet. But do you get the pure scale advantage because you're operating in two countries, or is there actually some leakage in terms of different operating environments? Are there areas that you think you might actually be able to improve your efficiency on a North American basis?
I do think in terms of... I mentioned Canada, where we have an efficiency of sub 50%. I think when you look at the U.S., is where there's the real opportunity. We do have, if you think about our mix in the U.S., you have very much market-sensitive businesses, much higher efficiency just by nature. You've got your capital markets business, wealth management business. There is opportunity there. We've been, we've been investing in the business, and so now the question really is to get that revenue trajectory off of it. So you're seeing it come back, and the fact that if we think about the investment we've made in people, particularly in capital markets, when you're looking at it from a fee base, very high ROE on the M&A side, we've moved up the league tables. So you want to see the gain in market share.
As you start to gain that market share, you have the opportunity to widen the operating leverage, particularly in the capital markets business. The investments we've been making in cash management, looking to drive a stable source of funding, to support our capital markets loan book, right? That's going to provide further accretive opportunity, both from an ROE standpoint, but also from a margin expansion in the U.S. So those investments are going to pay off the ability to create further operating leverage in the U.S. And I would say in our wealth management business, you know, that's one area that's difficult, but then you're looking at it from a high ROE business. The other we touched on briefly is regulatory optional.
And while it's all of our businesses in the U.S., the other two account for 70% of the revenues and 95% of the NIAT, there's huge opportunity there as well to drive better operating leverage. So I think those pockets, I wouldn't say it's necessarily a North-South type of thing. It's really an opportunity within those businesses. I think the thing that you can think about from a North-South, particularly in the U.S., where you do have an increased regulatory burden, you have an increased focus on things like process, controls, testing. Are there opportunities to where you can do that more cost effectively?
I think because we've probably been a little further behind on that journey than some of our U.S. peers, that's definitely an area that we're looking at to improve overall operational efficiency in the U.S. But in Canada, you know, I would say that we've pretty much done a good job of kind of getting through some synergies we talked about in the other areas.
Fantastic. I'll pause there and see if anyone has thought of any questions. No?
I don't see.
Yep.
You've talked about the market share aspirations in capital markets. Could you give us a sense in the U.S., and is there also a percent of your consolidated revenue or earnings that you would want it to grow beyond?
Yeah, I think we're very pleased with the growth organically we've had in our Capital Markets business. I mean, we've really taken that business from the ability to move up the league tables to be ninth in share growth expectations as it relates to global markets business. We've been investing in that. That journey is probably a little earlier on in its stage, and the expectation there is to probably mean the divergence between on the market side, between the players is quite significant. Looking to increase that by 1% to 2%. We do have no aspirations to grow the Capital Markets business bigger in relative proportion to the rest of the bank.
So as we think about some of the opportunities that we've been talking about as it relates to both our wealth management growth, our retail banking growth, both I think in Canada and what we're seeing within City National on the commercial side, it's more keeping it right sized as relative to the growth of the rest of the bank, not to grow it at any more substantial size relative to that.
We got a couple more.
I also had a question about Capital Markets. It seems like, a lot of the U.S. players have been fairly positive about just the green shoots and the revenue environment improving substantially, kind of from the last few months. Would love to just hear your, your sense of kind of the revenue opportunity and just the backdrop of that business.
... Yeah, thank you. I mean, I think we've definitely seen, while the investment, the pipelines have been lower, we've been improving on our market share on that standpoint, and you're starting to see people actually build. So the expectation is that that's quite positive and constructive going forward. Obviously, ECM has been slow out of the gate, given some of the uncertainty, as it relates to the environment, but you're starting to see positivity as it relates to on the M&A front. Confident in terms of how those pools grow, and I think it's also given the investments in our bankers and verticals that I think were underrated before. That's really testament to how we've been able to move up from a market share standpoint. So looking very constructive going forward.
Anything else? Okay, Nadine, you talked about growing the cash management business in the U.S. to help fund the capital markets book. But can you talk about liquidity deposits in a broader sense, particularly in the U.S.? Because that's where the pull is fresh. We've seen the transition of products in Canada negatively impacting margins, but there hasn't been pulling out of liquidity in Canada. So can you speak to the experience of the U.S., what you've learned, if there's anything that you may have changed operationally?
No, I think when you, when you look at the—what happened in, in the U.S. environment, particularly during the crisis in March, it was, it was a recognition, and this is always very interesting from a liquidity construct. You worry about things like concentration, you worry about large balance size. I think the, the interesting point was the rapidity with which the balances moved, and I think that's been a lot of topic of conversation recently, to say that the, the run, if you will, was something that, in terms of the pace, never really was ever anticipated that in terms of that quickness. When we look at it from our balance sheet, a couple of things. First of all, you know, taking aside the, the rapidity within the City National balance, we actually saw was a flight to quality from a standpoint.
So given RBC, given our stature in the market, similar to what you would have seen from the large money center banks in the U.S., we actually had a number of clients diversify into us from City National standpoint. But we also did see some clients recognize the fact around, around the diversification out. So we've been able to hold our balances, albeit our mix is suffering similar to what you've seen at other banks to debate in particular. So we're, we're working on that. We're working on focusing on growing that deposit base. I think unlike in Canada, where we had first and fundamentally focused on building that deposit franchise, in City National, it had not been a concentrated area of focus. And so what happened was you got through liquidity, had such great loan growth and liquidity, or deposit ratio is not a problem.
Actually, a lot of banks were trying to find places to get better yield as interest rates were falling. However, the problem now is you have to be able to fund the bank in a manner that you can create that margin. And so our focus is on ensuring that our, we're focused on growing that deposit base, is focused on looking at managing. We've taken down our FHLB, halved it from where it was at the start before the crisis hit. But it's a hard slot for deposits in the U.S. You have seen liquidity come out of the system to a greater extent than you have in Canada, and the pressure that's putting on the ability to extend credit is quite substantial. You're seeing banks sell off loan portfolios.
So the advantage we have within City National, we're holding our deposit base. We have the ability to grow it. You have to be conscious of what the nature of that cash is and what you're going to invest it into. But because of the slowdown in credit, there is an opportunity for us to improve our margins overall. And so while the cost of funding is increasing, there's also the repricing happening on the asset side. And I think because we're not as pressured from a capital standpoint, we're able to be much more selective in how we put that cash out. But I think it just reinforces the fact, particularly if you think about the commercial banking here in the U.S., what is going to be your source of funding? And that is where you're going to see continued pressure, I think.
And that's why for us, in particular, a lot of the strategies we've been looking at in the U.S. have been, what's the source of cash going to be, right? And so particularly why we've focused on cash management through the capital markets, but particularly when you look at wealth management and the access to discrete deposit base. That is so integral to how a bank operates, and that's why in Canada, it has been our focus to have that low beta deposit franchise. And you cannot go out, and I think we've evidenced this, you cannot go and buy that overnight because you can't have the confidence that that cash will be around. You can't earn the yield on it you would want to. And so that has always been a focus of us in Canada.
You can see it start to think, stand through in terms of how we're thinking about our strategies in the U.S. as well. But I think it really comes down to fundamentals of liquidity. I do think it will be interesting to see how the perspective, particularly around the regulator, that translates through in terms of how they think about liquidity rules and how they think about the stickiness or stability of the deposit base. Because, you know, concentration has always been something well understood in liquidity. Balance size been always something understood in liquidity. I think that combined with the rapidity with which things can move-
Mm-hmm.
is a very, very different dynamic that hasn't been thought through to the same extent that... You also have to think about the relationships that you have. Now, you could argue in City National, or so you could argue that in SVB, well, they had a relationship with the banker, but did they really? The treasurer at the end of the day was the sponsor, right? And so you have to kind of follow the chain, like who is the decision-maker as it relates to where those funds are placed. So while there was liquidity as it related to the social media element, and I think thinking that everything kind of has this cliff effect on 30 days, et cetera, is something that we can hold on to.
The bigger issue is really understanding the nature of that, that deposit base, and that really comes down to a relationship and ensuring that you have a stable source of funding.
Oh, Nadine, absolutely fascinating, but we're up against time. So, one final question.
Thanks. Thanks, Nadine. Just two questions for me. One, just wanted to clarify with you, what the current sort of level of CET1 requirement is. I know OSFI has moved up, moved up a few times. I believe you had mentioned 11.5. I just wanted to clarify with you on that. And then secondly, in the event that DSB does move up further, perhaps later this year or into 2024, relative to your 12%+ pro forma post-HSBC close, any sort of levers you have to, perhaps, either reduce RWAs or increase, your common equity core capital in the event that DSB does move higher post-close HSBC?
So just to confirm, our minimum capital requirement for CET1 right now stands at 11.5%. OSFI has signaled that they will look to raise the DSB by 50 basis points. They have not communicated when that will take effect or when they will announce that. In terms of our ability, we continue to optimize capital. I think the benefit we have is really around the strength of our internal capital generation. Overall, we've got very high ROE businesses that continue to accrete capital. I think that when it comes to optimization, we're always looking at that, and I think that's one of the importance of investing in data in particular.
So there's elements that you think that you're going to have a 100% risk weight on, and there are opportunities there because you get refinement in the data. I wouldn't say there's anything from an overall business construct per se, directly, but I think it's really coming down to our ability to have that strong capital generation overall, and be able to have a rope for organic growth.
Nadine, as always, thank you very much.
Thank you very much.
Appreciate it.