Bridgewater Bank sent out a nice email the other day summarizing 2009.  In it was one point that resonated. 

It said:

“Unlike lenders that depend solely on lines of credit or “warehouse lines” supported by third party lenders, Bridgewater Bank has the advantage of being able to raise consumer deposits to fund its mortgage business, delivering us from the vagaries of third party decision making driven by market impacts.”

Many of the non-deposit-taking lenders out there would love to be in that position.

Non-deposit-taking (“non-bank”) lenders were put at a disadvantage last year.  While banks enjoyed overflowing deposits from market-shy investors, most non-bank lenders had to rely heavily on the Canada Mortgage Bond market for mortgage funds.  As a result, non-bank mortgage rates were dependent largely on that market.

Banks, meanwhile, had lots of relatively low-cost cash to lend thanks to deposits and government mortgage buybacks. As a result, they were able to underprice competitors and recapture market share.

Going forward, non-deposit funding sources (CMBs, mortgage backed securities, covered bonds, etc.) might not be enough to keep non-bank lenders competitive.  One monoline executive told us Friday that, “Everyone will be a deposit-taking lender (eventually).”

Similarly, we still recall the prognostication from Scotia Mortgage Services’ President, John Webster, who said in November: “For a lender going forward, you either need a balance sheet, or need to rent one."

Recently, we’ve seen lenders like Xceed and CHIP apply for bank status–so they can get their hands on deposit money.  It seems other lenders may not be far behind.  We hear there are at least 30 new bank and trust applications with OSFI as we speak.

Last modified: April 26, 2017