OSFI head: Low rates creating false sense of security

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The head of the federal bank regulator says she remains concerned that low interest rates are lulling Canadians into a false sense of security – her comments suggesting OSFI could still ratchet down already-tight underwriting.

“The longer it (low interest rates) goes on, the more people can start to think this is normal and it’s not normal; it’s very, very far from normal,” Julie Dickson, OSFI superintendent. “I think that’s the big concern that I would have right now and I think there are many others who feel the same way.”

For Dickson, speaking at a national insurance industry conference in Ottawa Monday, a major priority is ensuring the economy stabilizes without the interference of rate stimulus.

“I think the concern is simply when a flood of money flows into an industry, there can be impacts that we, as a prudential supervisor, would not find helpful,” Dickson said at the Insurance Bureau of Canada event. “That’s in part why unwinding the monetary stimulus and getting back to a more normal situation is so important, because the unintended consequences of the impacts of this could be quite important.”

As for when and if OSFI will intervene in the housing market, Dickson reiterated the same sentiment she expressed in May of this year: That OSFI is still monitoring the housing market and willing to step in if it feels compelled to do so.

“We had looked at whether changes to B20 were necessary (and) that was before the summer; we concluded that we did not need to make any changes to B-20,” she said. “At this time, we are spending a lot of time monitoring what is going on and we are also collecting more data from banks.

“If we do decide to make any changes to B-20, of course, we’ll have public consultations, which is what we always do whenever we change any sort of guideline.”

  • Paolo Di Petta | dipettamortgage.com on 2013-09-25 9:21:56 AM

    I'm pretty sure I warned about all this low interest, cheap debt over a year ago. It was pretty obvious from our appetite for debt that it would produce short term stimulus in exchange for longer term issues. We had the past 10+ years of data to tell us that.

    Nice to see the Bank of Canada finally catching up.

  • Ron Butler on 2013-09-25 10:14:49 AM

    I have to agree with Paolo, ultra low interest rates over several years will require a degree of deleveraging at some point and the point may be looming in 2014.

    The device that OSFI is actively considering is to mandate that every mortgage; not just mortgages less than 5 years or Variable Rate mortgages, every single mortgage offered by a federally regulated institution use the BOC Qualifying Rate. Every mortgage qualified at 5.34%. If the market cools quickly this Fall it may not happen but if October and November heat up we may see more OSFI changes.

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