Guideline B-20 is a flagrant example of Canadians suffering the effects of stifled competition courtesy of the Office of the Superintendent of Financial Institutions, claims a new book.
In The GTA Affordable Home Ownership Crisis by R. Scott Davie, the owner of Davie Real Estate who spent decades selling homes in the region, OSFI is censured for the clout it carries with federal officials, even though it’s an unofficial government agency. Moreover, Davie has a solution for Canadians whose dreams of homeownership have been thwarted by OSFI-mandated B-20.
“There are Canadian banks in the American market, but we don’t have any American banks here,” Davie told MortgageBrokerNews.ca. “We should have limited American banks here so Canadians can benefit rather than being held hostage by their own banks.
“My suggestion is for the Ontario government to bring in a few American banks and register them provincially so they don’t fall under OSFI’s rules and let them pick up the business Canadian banks are ignoring by leaving people out in the cold so that it puts the mortgage markets in balance.”
Davie added that homeowners are also disadvantaged because switching lenders is subject to the 200 basis point stress test, a consequence of which is banks no longer have to offer competitive rates.
Calum Ross, a leverage wealth expert and VERICO broker with Mortgage management Group, loves the idea of opening up Ontario’s market to American banks, adding that Canadian banks are an oligopoly.
“Our banks’ power and control of the market is immense and the global impression of Canadian banking is it’s a license to print money, because if you get in with the Big Six they divide everything from back room operations to commonality of credit rules,” said Ross. “If you juxtapose the definition of ‘oligopoly’ and the Canadian banking world, you’d be hard-pressed to say that we have a system with enough variety and competition.
“Because there’s a high burden of entry from a capital standpoint and because our banks are big players with so many things to protect them from losing control, it stifles innovation.”
However, Ross doesn’t believe OSFI acted inappropriately by introducing B-20, punctuating his point by referring to the wealth effect, whereby people spend more money because of their increased wealth. He added that too many Canadians use their principal residences like ATMs.
“As much as we may not like some of the changes to CMHC, those changes were necessary because we, as taxpayers, are shareholders in those insured loans,” said Ross. “Generally speaking, I think the moves made by OSFI, CMHC and other high-ratio insurers were necessary and the only thing we could do to protect ourselves from ourselves.”