Bank vet criticizes financial overhaul plan

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It’s not just brokers who scoffed at one financial organization’s recommendations for an overhaul to the Canadian financial system, after one former bank executive provided his own criticism.

Gord Nixon, former CEO and director for Royal Bank of Canada doesn’t support the IMF’s recommendation that Canada’s financial system be run by a single regulatory body, noting such an arrangement didn’t help the United States during the financial crisis.

“Quality is more important than structure,” Nixon told the Financial Post after reviewing the IMF’s proposal.

In their document, Canada’s Financial Sector: How to Enhance its Resilience, the IMF’s Hamid Faruqee and Andrea Pescatori suggested Canada should implement two steps that will help identify and address any factors that could cause stress to the economy.

The first is to mandate a “macroprudential oversight of financial systems” – a single regulatory body that will hold policymakers accountable to respond to future economic crises.

The second is the implementation of a framework to help provincial and federal authorities to respond to any potential crises.

“Looking ahead, a broader issue is strengthening Canada’s policy frameworks designed to keep the overall financial system safe,” the pair wrote. “But there is a healthy debate over what approach works best.”

The International Monetary Fund also suggested the Canadian government should tighten the lending rules for uninsured mortgages, which it believes are contributing to an overvalued housing market.

“A possible sign of ‘leakage’ from tighter financial rules in Canada—which is a general problem that countries can face after tightening such rules—involves the expanding role of uninsured mortgages,” Faruqee and Pescatori wrote. “These loans with loan-to-value ratio below 80 percent are not subject to the same regulatory tightening. These now comprise the bulk of mortgage originations and help fuel housing demand.”
 
  • LanceH on 2015-03-19 9:07:57 AM

    Obviously, this pair is unaware that banks tend to stick pretty close to CMHC rules even on uninsured deals.

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