Flaherty responds to banks' comments

Flaherty responds to banks' comments

While he still hasn’t ruled out tightening mortgage rules next year, Canadian Finance Minister Jim Flaherty thinks it is up to banks and not government to slow lending as household debt continues to rise, aided by low interest rates.
 
“The primary responsibility for prudence in lending practices rests with the financial institutions,” Flaherty told Bloomberg News on Tuesday in Ottawa. “People also need to take responsibility for what they do and exercise common sense in terms of taking on debt.”
 
This comment was in contrast to what some leading bank executives have said in recent weeks, including Toronto Dominion Bank CEO Edmund Clark, who told The Globe and Mail that cutting Canada’s excessive household debt is a matter for the government rather than lenders, and would be best tackled through tighter rules on mortgages. No bank wants to lead the way in imposing stricter borrowing conditions for fear of losing customers to rivals, Clark, 63, told the newspaper.
 
“Banks are responsible for their own business practices and what I find odd from time to time is when a bank executive asks me to tighten lending rules,” Flaherty said. “It seems to me that’s the primary responsibility of the financial institutions and not the government.”
 
Canada’s debt levels topped the U.S. for the first time in 12 years, prompted by record-low interest rates, which saw consumers take on bigger mortgages, car loans and credit card balances.
 
Flaherty said he expects interest rates to “go up over time,” which will bring higher mortgage costs.
 
“People have to make sure they can afford, in particular, their mortgage payments when interest rates rise,” Flaherty said.
4 Comments
  • Trish Hart, AMP Invis 2010-12-24 4:27:26 AM
    It is not the mortgage payment that will sink the consumer in the cycle of increasing rates. The misc payments (i.e. vehicles, finance companies, lines of credit) that consumers have taken on is what I see on a daily basis creating financial stress.
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  • mortgage needs 2010-12-24 11:37:07 AM
    Hi Trish, you make a good point there. Consumer credit cards, auto leases and such are generally at higher rates and/or worse terms than a mortgage. However, those are also much smaller ticket items, but I guess they do add up.
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  • mortgage needs 2010-12-24 11:48:49 AM
    (1) Government cannot always be expected to step in, or government may get the blame for messing with the "natural" cycle of things - no one knows for sure where the peaks and the bottoms are;
    (2) Government cannot interfere too much in the lending process or it may be blamed if bail-outs become necessary;
    (3) As well, lenders will be expecting bail-outs if they act on frequent directions from the government;
    (4) Lenders, and those managing lending corporations, being accountable to their shareholders, have to be responsible for sound lending practices;
    (5) Question: Are taxpayers being asked to bail out both sides of banks' Balance Sheets ? That is, are we seeing bail-outs of both Bank Liabilities [ i.e. the Deposits (Savings) placed with them by their banking customers ], as well as Bank Assets ? We may have a better system if Government only bail out Average Joe's Deposits at 100%, and not be there to bail out Bank Assets or other liabilites. What do you guys think ?
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