Canada’s banking regulator is looking more closely at the risks that spiking monthly payments could pose to some borrowers who have variable-rate mortgages and considering whether banks should hold more capital against those loans to absorb possible losses from defaults.
OSFI said it is “actively assessing the risks” those loans could pose to the financial system, and considering whether the capital banks hold against them is sufficient, “or revisions are warranted.” The risk outlook released Tuesday is the second annual edition OSFI has published, though the regulator updated last year’s first edition in October as factors such as high inflation and the prolonged impacts from war in Ukraine intensified some risks facing the financial sector.One is liquidity and funding risk, which tracks whether banks and pension plans have sufficient cash from deposits and assets that can easily be turned into cash to meet unexpected obligations.
So far, Mr. Routledge has been surprised at how low loan losses have stayed despite the rapid run up in interest rates. “Canadians are servicing a higher cost of debt quite handily,” he said, but added: “We’re not through this yet, risks are still out there, and we’re very, very mindful and alert to them. ... We’re not at all relaxed.”