Canada’s housing market could also be cooling, however the system stays resilient because of stronger underwriting requirements launched greater than a decade in the past, says OSFI superintendent Peter Routledge.
“Going again to 2012, OSFI put in place ideas for sound actual property secured lending underwriting—Guideline B-20,” Routledge stated on the Scotiabank Financials Summit. “They’re simply good housekeeping ideas… and regardless of every thing that’s occurred, we’re close to all-time lows for mortgage delinquencies and for credit score losses measured in opposition to loans.”
He pointed to the present dynamic the place about 25% of listings are being pulled from the market. Whereas that’s “close to secular highs,” Routledge stated it exhibits sellers aren’t over-leveraged and may proceed making funds with out slashing costs.
Requested about dangers within the rental market, significantly in Toronto and Vancouver, he added: “There’s somewhat little bit of extra provide and costs are coming down off all-time highs. That’s not essentially an hostile end result for everybody within the nation.”
Condos are “starter locations for youthful Canadians,” he added, and decrease costs can enhance entry. “If costs come down and produce younger Canadians in to allow them to afford it… shouldn’t the market, not the regulator, take care of that?”
“If there’s a extra severe downdraft within the housing market, there’s ample capital within the system to soak up that shock and make it a manageable state of affairs for households and monetary establishments,” he stated.
Inside OSFI’s name on financial institution buffers
The dialogue turned from housing to financial institution capital, asking Routledge how OSFI decides what constitutes a good degree for the home stability buffer (DSB).
The DSB is presently set at 3.5%, which is added to the worldwide Basel III minimal of 8% to set the Canadian flooring for systemically essential banks at a CET1 ratio of 11.5%. In observe, the massive six banks are properly above that degree, with common CET1 ratios round 13.7%.
“The ground for a well-capitalized systemically essential financial institution is 11.5% on the CET1 ratio,” Routledge stated. “If a financial institution stories 11.51%, you don’t have any drawback out of your supervisor. If it’s 11.49%, now we have a shared drawback to resolve.”
He careworn that the upper ranges of capital held right this moment should not imposed by OSFI however mirror boards’ personal selections. “All credit score for that conservatism and prudence belongs to boards and senior executives, not us,” he added.
Routledge was requested what it will take for OSFI to carry the buffer down. He emphasised that family debt metrics stay the important thing driver.
“If family debt to earnings and debt service ratios improved, that might be a big driver of higher stress take a look at outcomes and subsequently a decrease DSB,” he stated.
He additionally pointed to profitability as an essential issue. “If earnings go up, if earnings are greater, the stress exams aren’t as darkish,” Routledge defined.
On the similar time, he cautioned that right this moment’s stress testing nonetheless justifies the present 3.5% setting, pointing to the Worldwide Financial Fund’s latest overview of Canada’s monetary system. The IMF’s systemic stress exams, he famous, had been aligned with OSFI’s personal work. “They’re darkish. And that’s how we obtained to three and a half. That’s the insurance coverage we’d like,” he stated.
Credit score unions: trying to Quebec
The dialogue additionally turned to credit score unions, with Routledge requested concerning the wave of establishments, primarily in Western Canada, contemplating a transfer to federal oversight.
He stated credit score unions play an essential position by giving Canadians extra selection in monetary providers, and that OSFI’s job is to ensure the choice of federal continuance is obtainable with out pointless hurdles.
He famous that Canada has roughly 9 million credit score union members, about 5 million of them exterior Quebec. “To the extent the mutual mannequin requires federal continuance to be able to acquire efficiencies to supply that competitors, then we must be doing every thing we are able to to ensure that street is as easy and now not than it needs to be,” Routledge stated.
He pointed to Quebec’s system for instance of how the mannequin can succeed. “The credit score union system in Quebec generates adequate recurring earnings to develop the stability sheet with nominal GDP, spend money on their platform, and pay an inexpensive dividend to their shareholders who’re additionally their members,” he stated. “That may be a good case research for credit score unions exterior Quebec to study from.”
Different takeaways
Routledge additionally touched on a number of different themes through the dialogue:
Industrial vs. residential lending: Routledge famous that threat weights for family mortgages are a lot decrease (10–15%) than for industrial loans (35%–60%). He stated that has nudged banks to favour residential over industrial lending for many years and prompt rebalancing is likely to be wholesome: “Perhaps a bit extra industrial publicity can be good not just for the banks, however good for the nation.”
Blanket value determinations: These happen when lenders depend on bulk property valuations, typically from earlier within the growth course of, relatively than particular person value determinations at closing. Routledge estimated they account for simply 1.6% of mortgages. He reminded lenders that OSFI’s B-20 guideline requires mortgage valuations to be present and cheap, including {that a} stale appraisal shouldn’t be according to these ideas.
Non-regulated and flippantly regulated lenders: Personal lenders and mortgage funding firms originate roughly 10% of mortgages however account for less than about 1% of excellent balances. Routledge stated OSFI’s position is to observe spillovers into the regulated system, primarily by way of counterparty threat: “First, do no hurt. If non-public lenders need to take greater threat for greater returns, and it’s not systemically a difficulty, I don’t assume we have to react—until that threat flows by way of counterparty exposures.”
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blanket value determinations credit score unions home stability buffer dsb Workplace of the Superintendent of Monetary Establishments OSFI Peter Routledge regulator Scotiabank Financials Summit
Final modified: September 3, 2025
