First National Financial LP

Residential Market Commentary - OSFI bolsters the backstop

  • First National Financial LP

Canada's financial regulator is telling the country's big banks to put aside more money to cover potential losses.  The Office of the Superintendent of Financial Institutions says vulnerabilities in the financial system remain elevated, and have actually increased in some cases.

OSFI will increase the domestic stability buffer from 3.0% to 3.5% in November.  Back in December the buffer was bumped up from 2.5%.  The buffer applies to Canada's six biggest banks and is set twice a year, usually in June and December.

OSFI says there are a number of vulnerabilities facing the financial system including, the rising cost of debt and high levels of both corporate and household debt.

In the first quarter of this year Statistics Canada reports the household-debt-to-disposable-income ratio in Canada climbed to 184.5%.  So, for every dollar in disposable income, the average household owes about $1.85 on credit cards, loans and mortgages. 

In the first quarter Canadians borrowed $16.5 billion and $11.2 billion of that was for mortgages.  This at a time when the interest portion of mortgage payments has increased by as much as 70%, as the Bank of Canada boosts interest rates in an effort to bring inflation under control.

Despite ordering the extra buffer OSFI says the Canadian financial sector has shown resiliency and the banks have shown signs of strength.  It says the move is intended to make sure that strength and resilience remain intact.