Federal banking regulator happy with tighter guidelines

“For some time, OSFI has been conducting major reviews of bank mortgage lending portfolios," Julie Dickson, head of the Office of the Superintendent of Financial Institutions (OSFI), said Tuesday. "We have issued a guideline that includes a set of best practices for prudent residential mortgage lending.

"Further, we have been reviewing the models used by banks to calculate capital charges for the part of the mortgage portfolio that is not insured, and generally believe that the models are producing reasonable results.”

In a speech to the 2013 Bloomberg Canada Economic Summit in Toronto, Dickson told attendees that real estate lending has become a significant area of focus for OSFI because of the significant incentives for consumers to borrow and for banks to maintain revenues. The regulator was also concerned about the size of mortgage lending portfolios, concerns about some markets being overvalued, and the possibility that customers’ debt serviceability could be masked by low interest rates.

“The Minister of Finance has taken steps to place restrictions on mortgage insurance. All of these measures have led to some welcome changes in the market, slower growth in household credit, and a more balanced picture overall,” she said. “In July 2012,

OSFI was also given responsibility for overseeing the commercial activities of Canada Mortgage and Housing Corporation, which complements the range of other measures that have been taken.”

Dickson said the OFSI would continue to monitor the mortgage market and watch the effects of the changes that have been made in this area.
The chief regulator said the agency was concerned about the prolonged low interest-rate environment. She said the worries include that it may provide incentives for banks to grow their earnings asset base by trying to gain market share, which is a zero-sum game, increase fee income activities, reduce expenses, enter new markets, and by increasing the proportion of higher-yielding assets in both their lending and investment portfolios.

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