Banks to hold more capital to cover mortgage risk

Ottawa is tightening conditions for mortgage lenders in a bid to bolster defences against a financial crisis. Along with the announcement by the finance minister last week that mid-priced homes will be subject to a higher downpayment in order to qualify for government-backed mortgage insurance; the Office of the Superintendent of Financial Institutions is said to be considering raising the level of capital held by banks against residential mortgages. The move is due to the rising cost of homes and an industry veteran believes that it could mean fewer mortgage options available as banks scale back their lending, or higher charges to offset capital requirements. Paul Holden of CIBC wrote in a client note that he doesn’t expect a large impact but “we are likely talking about a slowing at the margin.”

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