Canada ♥ regulation: banks will be asked to test their debt loads
After the news came out last week that Canadian debt levels were at an all-time high, it was probably inevitable that the feds would respond with some form of new regulation. This is Canada, after all, the country where a tightly regulated financial sector avoided the chaos of such countries as Ireland, Iceland, Greece and even the U.S.—not to mention any other recessionary shoes that haven’t yet dropped. We’ve become a country full of red tape fans, so the news today from the Globe and Mail that the government is going to start testing the banks’ debt loads is probably welcome.
The Office of the Superintendent of Financial Institutions, which regulates Canadian banks and insurers, is requiring lenders to do more testing of the risks that consumer debt poses to their balance sheets.
In addition, it is asking “many more questions about how banks are monitoring portfolios, including secured loans,” OSFI head Julie Dickson said in a recent interview.
The heightened scrutiny is another sign that Ottawa has become concerned about the unprecedented amount of debt consumers are carrying.
If the OSFI is specifically going to be looking at “secured loans,” that presumes that mortgages are going to get a pretty severe grilling from the federal regulator. This is, of course, exactly what we have regulators for—none of the banks wants to be the first to start turning down customers because they’ve got too much debt.
Should the feds manage to pull this off and stop any debt crisis before it gets truly bad, the reputation of Canada’s regulators will be even more solid. If there were such a thing as a Canadian libertarian, we’d expect them to be crying right about now.