Proposals on global financial reforms by an international committee are raising concerns among Canadian bankers that lenders will be forced to resort to more mortgage securitization, according to a report in the Financial Post.
The reforms, entitled Basel III, are part of an effort to prevent another credit crisis by setting international regulations. But the Post reports the reform proposals - which specify stricter capital requirements for banks - don't take into account that insured Canadian mortgages are guaranteed by the federal government through CMHC. This could force lenders here to securitize and sell more mortgages as opposed to holding them on their balance sheets.
"Our unique Canadian mortgage market was one of the important reasons why we did so much better than others, and this now may be in peril due to several proposed rules that go over and above the requirements for more capital," said Bank of Nova Scotia chief executive Rick Waugh during the bank's annual meeting. He added that banks, regulators and the Canadian government must "rigorously state our case and protect our interest" to global policymakers.
Finn Poschmann, vice-president of research at the C.D. Howe Institute told the Post that the proposed rules could put Canadian banks in a potentially troubling scenario where they could face slower asset growth on their business or be forced to securitize things that are relatively easy to sell, such as high quality mortgages.
The preliminary new rules by the Basel Committee are scheduled to be released by the end of the year.