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.