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Carney v. Banks

Mark-Carney 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.