February 9th, 2012

TD CEO Talks of Self-Regulation

Ed-Clark-TD-BankTD Bank CEO Ed Clark suggested yesterday that the government may let banks tighten lending standards on their own, as opposed to a government-mandated “major tightening” of mortgage rules.

“They’re worried that the Canadian economy is slowing down right now and [major rule changes are akin to] taking out a bazooka,” Clark told Bloomberg. He said policymakers prefer that banks “tweak” their own lending guidelines.

“We have seen the banks in a series of small moves say ok, ‘why don’t we tweak here and tweak there and see if we can tighten the rules.’”

New-Mortgage-Rules (2)Those rules have indeed been tightened. In recent weeks and months, banks and non-banks alike have raised rates on higher-risk applications like stated income and rental deals.

“We are trying to have a national dialogue that changes people’s behaviour and a number of banks like us have said ‘ok, if we think people’s debt loads are getting high let’s start to crank up the pricing a little.”

Lenders have also stiffened income and qualification guidelines. In some cases (like with TD’s own equity program), the stricter policies have made the products somewhat impotent.

“There’s nothing going on in Canada like what happened in the United States because the banks own the mortgages, we put them on our own balance sheet,” Clark said. “But it doesn’t mean we couldn’t have a problem…”


Rob McLister, CMT

15 thoughts on “TD CEO Talks of Self-Regulation”

  1. Oh, I see Clark has become the poster boy for Canadian banks saying “Banks own the mortgages so we put them [securities] on our own balance sheets.” Of course you do Clark, because the NY Fed has not approved your (TD Securities) application as a primary dealer, no $71bil MBS repo swaps for you.
    “A third Canadian institution, TD Securities, has been waiting for approval to become a primary dealer since at least July 2009.” Link
    Luckily the rest of our banks (BMO, RBC, HSBC, BNS) have their prestigious primary dealer status to hyper-hypothecate their [clients] holdings at will. Link
    “Fuelling hyper-hypothecation and joining together daisy chains of liability through the pledging and re-pledging of collateral have been banks around the world.”
    “Royal Bank of Canada re-pledged $53.8 billion of $126.7 billion available for re-pledging”
    Link
    Nobody has a clue what’s going on in the shadow banking system, and is the reason why pension funds are withdrawing. I won’t comment further on this post.

  2. Watchdud
    Who cares what TD does in the US. This is a Canadian discussion.
    Canadian banks balance sheet the majority of their mortgages and can no longer bulk insure the risk away. Problem solved. End of discussion.

  3. Do I understand this correctly that banks are restricting lending by increasing the mortgage interest that customers pay and increasing the banks profit at the same time?

  4. Remember, everything Ed says is said for a very specific reason, he’s the president of a bank after all. Understand that by taking the blame off the products that REALLY makes banks money (that would be credit carsd, LOCs, and Loans) and making mortgages the scapegoat for this “canadian personal debt problem” It makes it easier for the government to “look the other way” because the banks are doing the right thing by making tightening mortgage rules.
    Nice PR Ed. If i was mortgage broker i’d be taking a second look at where i’ve placed all my business, and look at those monolines who are supporting the broker business, not just their own pockets.

  5. Can anyone tell me what the percent is on default with Stated Income programs and rental programs?? I have asked a few lenders and no one seems to know.

  6. I agree with Ana, I would love to know what the default rate is on (CMHC/Genworth/uninsured) stated income and rental property mortgages.

  7. Didn’t these same banks claiming they can self regulate just demonstrate with a little rate war how willing they are to engage in a race to the bottom?

  8. I have said for years that the Fed’s should tweek lending requirements by increasing minimum down payments to 10% possibly throttle back the amortization rates to 25yrs on refinances / As for the banks self governing that’s a joke! The only tighting they do is to take advantage to increase rates fees ect. As recent as yesterday I heard a bank mortgage rep pitch 0 down and those of us who have had kids going to college or University know very well the banks prey on kids with no income hooking them Visa cards even if they have no jobs! I think the Banks should start looking in the mirror before they speak and clean up their act before they increase their rates and fees to the paying public to bail them out of their greed due to their lending practices.

  9. Banks are simply risk pricing. They are lowering rates for well qualified people and raising them for weaker applicants. There is nothing unusual or wrong with that.

  10. In other news, wolves say they would like to guard the hen house.
    But seriously, self regulation is fine with me as long as the mortgages are not insured by CMHC and an agreement is put in place that the banks are not eligible for bailouts.

  11. Ed Clark has said lots of silly things in the last couple of years. Banks regulating themselves is just another.
    That said, when your a big fish, you have significant influence on both the government and regulators.

  12. Ed Clark’s compensation is linked to TD’s stock price. People who think he’s going to allow shoddy underwriting and mass defaults should think again.

  13. Banks regulating themselves – sounds like “Police investigates itself”.
    Known outcome – nothing productive for population.

  14. The stated income insurance premium at 90% LTV is 2.375 higher than the regular premium. So 2.375 times the normal default rate of .38 gives you .90. That’s probably a good guess for stated income defaults at A-lenders.

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