Bank of Canada chief Mark Carney isn't afraid to confront Canada's financial titans.
He aimed these comments in the big banks' direction yesterday:
"We expect our banks to make lending available, to have credit available and affordable in Canada. We're acquiring a lot of their mortgages … up to $75 billion worth. We've given a guarantee with respect to some of their obligations. So this is a two-way street. We expect credit to be available through our financial institutions." (Reuters)
Carney also had concerns about upcoming potential risks. According to CTV:
- He feels household incomes could drop significantly. Vulnerable households could then default on loans causing significant losses for Canada's banks he says.
- Carney also said that banks who hoard capital because they fear loan losses will worsen the situation.
Well, that doesn't exactly make banks want to lend.
On the other hand, based on historical credit spreads, 5-year fixed rates should be in the low 3% range right now. Instead they're close to 5%. There is room to drop if lenders want to–on the fixed side at least. A lot of people know that and they aren't happy that rates are being held up.
(On a related note, there's been a nice drop in the "TED spread" lately. The TED spread is a good measure of perceived credit risk and it has been tracking mortgage rate premiums pretty closely…so down is good.)
Given all this, the big banks have increasingly been under the spotlight to loosen up lending. Canadians can thank Mr. Carney for making the spotlight brighter.
Last modified: April 29, 2014
Good for Carney! Let’s hope this will put some pressure on banks to follow up withcutting rates.
Will keep an eye on your blog.
Great content.
Re 5 yr fixed rates “should” be in low 3% range but are closer to 5%; I read in an outdated book that fixed mortgage rates between New Year’s day and March can INCREASE due to banks competing with RRSP season (no clear explanation given). I was just offered a 5 yr fixed rate 4.99% at TD at a branch, but told by another TD branch they would not match it, but that maybe rates would drop closer to RRSP season (!?). What I read may be outdated and is obviously conflicting with what I’m being told in the here and now current situation. Why or how does RRSP season influence fixed year mortgage rates? Is it likely 5 yr fixed rates could come down to 3%? My family says to grab any 5 yr fixed rate in the 4% range, I can lock in anytime until April 2009.
Carney calls it like it is and is probably the best Bank of Canada governor since Gerald Bouey.
Hi Cora,
I’ve never heard any statistical evidence that rates increase in the first few months of the year due to RRSP season. I guess it would be an interesting study.
As for rates dropping to 3%, anything is possible. That said, we try to avoid most rate predictions because forecasting is a coinflip most of the time. It’s better to focus on what you can afford, your risk tolerance, and the available research on variable rates and shorter terms.
Cheers,
Rob