"The reduction in March continues to be effective and appropriate," the Office of the Superintendent of Financial Institutions (OSFI) said in a letter to the industry.

"Vulnerabilities in the financial system remain elevated but stable against a backdrop of ongoing uncertainty."

Canadian banks had been shoring up the domestic stability buffer before the coronavirus pandemic, as OSFI had raised the required level by 25 basis points at every twice-yearly review since it was introduced at 1.5% in June 2018 .

OSFI made an out-of-schedule 1.25 percentage point cut in March, freeing up more than C$300 billion ($222 billion) of lending capacity to help limit the pandemic's economic impact. It maintained the level at its June review.

The buffer covers vulnerabilities including Canadian consumer and corporate indebtedness and asset imbalances, OSFI said.

The Common Equity Tier 1 (CET1) capital - the core bank capital measure - remains at 9% of risk-weighted assets; a 4.5% base level, a "capital conservation buffer" of 2.5%, and a 1% surcharge for systemically important banks.

The CET1 ratio of the six major Canadian lenders - Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada - remained well above this level, between 11.8% and 13.5% in the quarter ended Oct. 31.

The banks increased lending by 4.5% in the quarter from a year earlier, although slowing from a high seen in the three months through April.

They have put aside nearly C$20 billion to cover potential loan losses.

(Reporting By Nichola Saminather; Editing by Andrew Heavens and Bernadette Baum)

By Nichola Saminather