For homeowners overall, it's a margin of safety that will improve credit quality: Superintendent
The head of Canada’s main banking-industry regulator said his agency won’t bow to pressure to loosen mortgage-underwriting standards in response to rising interest rates that are boosting homebuying costs.
Peter Routledge, superintendent of the Office of the Superintendent of Financial Institutions, said at an event in Toronto on Thursday that one of the agency’s top priorities is intensifying its focus on residential mortgage-underwriting standards. OSFI in 2017 introduced a package of rules, known as Guideline B-20, that tightened qualification for uninsured mortgages.
“The uncertainty and anxiety caused by the rising interest rate environment have understandably caused some Canadians to advocate for the loosening of the underwriting standards in Guideline B-20,” Routledge said. “Let me reassure those of you who oppose a loosening of underwriting standards that OSFI will not do that.”
Routledge said he’s glad that the provision in Guideline B-20 that required institutions to stress-test potential mortgage borrowers at higher interest rates was in place in recent years. With rates rising, many homeowners will be hit with higher costs, and it’s “reassuring” to know they’ll be better prepared to weather the challenges ahead, he said.
OSFI also is undertaking a comprehensive review of its Pillar 2 Capital Framework, which looks at “idiosyncratic risks” that aren’t already captured by the Domestic Stability Buffer or the banks’ Pillar 1 Capital Requirements, Routledge said. The work is intended to provide the regulator with “better tools to continue to verify that individual banks’ capital levels are robust to their unique risk profiles,” he said.
“While OSFI can always act to increase capital and leverage requirements commensurate with an institution’s individual risk profile, our review is intended to improve transparency and predictability around OSFI’s Pillar 2 Capital Framework and ensure that it remains fit for purpose given our intensifying risk environment,” he said.
Routledge also said that in the current environment, all OSFI-regulated institutions should maintain capital and liquidity buffers that are “well above their through-the-cycle averages.”