Regulator also keeping a close eye on Toronto's condo crisis, superintendent indicates
More competition in Canada’s banking sector could be ahead after superintendent of financial institutions Peter Routledge signalled willingness on Friday to be “a little bit less conservative” in his approach to the space.
Earlier in the week, Bank of Canada deputy governor Carolyn Rogers had criticized the “oligopoly” exerted by the nation’s leading lenders over the financial system.
And Routledge, who helms Canada’s most important banking regulator as head of OSFI (the Office of the Superintendent of Financial Institutions), acknowledged that a cautious approach to the sector had hindered competitiveness.
“There’s this natural bias in our system that causes us to be averse to institution failure,” he told reporters. “If you want more innovation in the system, you’ve got to lighten up that aversion.”
He said adjusting capital rules could make it more attractive for banks to lend to smaller businesses and potentially boost productivity, and described regulators’ “burden of responsibility” to allow smaller challenger institutions to compete with top banks.
Canada’s banking space has traditionally been dominated by a handful of major lenders: Toronto-Dominion Bank (TD), Royal Bank of Canada (RBC), Canadian Imperial Bank of Commerce (CIBC), Bank of Montreal (BMO), Bank of Nova Scotia (Scotiabank), and National Bank of Canada (NBC).
Condo crisis now in OSFI’s crosshairs
Routledge’s Friday speech to the Economic Club of Canada also addressed risks to Canada’s financial system – with tariffs, housing market weakness, and a gradual increase in mortgage delinquencies now among those threats.
OSFI appears to be keeping an especially close eye on the much-publicized woes of the Greater Toronto Area (GTA) and Greater Vancouver (GVA), whose condo markets have slumped over the past 18 months and stirred fears of a full-blown crash.
“Elevated household debt and concentrated activity in certain markets – like the preconstruction condo market in the GTA and GVA – mean that stresses in these segments could spill over into the wider financial system,” he said.
While overall mortgage delinquencies remain low, Routledge noted that they’ve been on the rise – in variable-rate fixed payment products, as well as among investors and self-employed borrowers.
But he expressed confidence in the overall health of the national financial system, reiterating that the banking space “remains well capitalized” and appears equipped to manage the condo market stress and other challenges.
“We remain confident that the system’s resilience is sufficient to manage the risks we face today,” he said.
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