Bank self-regulation? You be the judge

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Canadian banks continue to send out mixed messages to consumers and mortgage brokers alike.

The dust had barely settled from the recent rate war that saw the Big Banks offer historic low rates, when the head of TD Bank announced that his institution is tightening lending standards in a response to a “genuine concern” about the country’s housing boom and rising consumer debt levels.

“Household debt numbers are coming up to U.S. levels, so that is causing us a concern,” Toronto-Dominion Bank CEO Ed Clark told Bloomberg Television in New York on Thursday.

Canada’s banks are in talks with the federal government about ways to curb mortgage lending to ensure the country avoids a U.S.-style housing correction, he said. The banks have responded by restricting some lending and raising prices on higher-risk borrowers, Clark said.

“We are trying to have a national dialogue that changes people’s behaviour and a number of banks like us have said ‘ok, if we think people’s debt loads are getting high let’s start to crank up the pricing a little.”

For John Panagakos, principal broker at Dominion Lending Centres-Home Financial Inc. in Toronto, it’s all a little confusing.

“The banks can’t seem to make up their minds. Do they want low rates like we saw last month or are they concerned about low rates and increasing consumer debt?” he told "I don’t agree with direct government intervention. The market place should manage on its own.”

While he agrees consumer debt is high, Panagakos thinks we have to look at the situation more closely, because the Canadian market “is not the same as in the U.S. and maybe we can afford these debt levels.”

According to Clark, the Canadian government prefers that banks “tweak” their own lending standards rather than it imposing “major tightening” of mortgage-lending rules.

“They’re worried that the Canadian economy is slowing down right now and that’s taking out a bazooka,” Clark said. “We have seen the banks in a series of small moves say ok, ‘why we don’t tweak here and tweak there and see if we can tighten the rules.’”

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