Government listens when bank CEOs speak, and Finance Minister Jim Flaherty liked what he heard from Scotiabank’s Rick Waugh on Tuesday (full story).
“…I’m glad that some of the banks, at least one of the bank executives yesterday, indicated that he agreed that actually the banks should exercise prudence and not rely on government to do it for them,” Flaherty said on Wednesday.
“I’ve tightened up the mortgage insurance market three times…I really don’t want to do it again.”
With statements like that, the Department of Finance seems poised to take no imminent action on mortgage rules. It will probably digest the spring housing numbers and go from there.
Source: Financial Post
Rob McLister, CMT
What about the OSFI proposals?
Flaherty thinks the OSFI isn’t part of the government. He thinks it’s part of the banks. A bit of slight-of-hand working right before your eyes! Brilliant bit of politics right there.
Helps him cover up his tracks from the zero-40 amms and nearly back to earth again. Shazam!
Am I reading this correctly? The banks (TD) are imposing these stricter lending conditions on themselves?
No, the OFSI is going to implement regulations on the banks (by the end of this year) and the OFSI according to Flaherty is not part of the government! For some reason Flaherty thinks that the OFSI (since not him), is not part of the government and because he’s (i.e. the government) is not going to reduce amortizations back to 25 years or ramp up down payments, the government is letting the banks regulate themselves. Ha!
http://en.wikipedia.org/wiki/Office_of_the_Superintendent_of_Financial_Institutions
“The Office of the Superintendent of Financial Institutions (OSFI) is an independent agency of the Government of Canada reporting to the Minister of Finance created “to contribute to public confidence in the Canadian financial system”. It is the sole regulator of banks, and the primary regulator of insurance companies, trust companies, loan companies and pension plans in Canada.”
The role that OFSI, CMHC and the Minsitry of Finance play are very different roles.
Think of it this way like the RCMP, OFSI is the “enforcement” arm of the government. They ensure that regulations are maintained and with government oversight, they establish and set the rules underwhich a bank or lender conducts their business. They establish guidelines, audit requirements, etc.
CMHC does NOT set LENDING guidelines for the banks – they set INSURANCE guidelines for the insurance product which they offer. This is no different than any other insurance company, they determine what THEIR acecptable risk tolerance is, they do not dictate to their customer (the banks) what their risk tolerance should be.
Flaherty is 100% correct that he should not be managing this risk tolerance. OFSI looking at the audit policies and risk policies of the banks is NORMAL – they do this to ensure that our banking system can sustain itself… note that I say sustain itself… not so CMHC or the government can sustain the banks.
Banks and lenders are PRIVATE companies in a free market economy. If they cannot appropriately govern their business and want government to do it for them… does that mean that the banks will give up their Billions in net profits and donate them to the Canadian Tax payer??
Hey good point Paul. Let’s take it a step further even. Maybe the government can underwrite for the banks! In fact, maybe the Finance Department should set up branches and take deposits too!!
So is the “government” tightening lending or not?
Seems Flaherty can define “government” however he chooses. I really don’t think people are buying it though.
So we agree that OFSI and Flaherty are (different branches of the) GOVERNMENT or not?
Maybe Flaherty is just too lazy to do it himself….or, maybe, just maybe, it would look really, really bad if he came full circle upon himself. Look Jim caught his tail!
I don’t really care that much, but it’s funny to watch him spin-it.
OSFI’s guidelines are not imminent. They are open for public comment and it could be up to a year or more before they take effect.
OFSI’s role, as defined, is to ensure the stability of the banking system in Canada. Yes they report to the Finance Department, but then so do many other departments. The fact that OFSI is reviewing the banks risk policies is not a new thing, they do it all the time, it is their mandate to do this.
OFSI has been doing this long before the current government formed, and long before the previous government – people are only just paying attention to it now for some reason.
I think it is important to remember too that it is the banks that are pushing for tighter mortgage rules, not government.
So think about it… if you were an enforcement arm of the government (doesn’t matter which one) and someone is screaming for tighter rules who is already bound by the rules in place… wouldn’t you take a keen interest in seeing why it is that they are asking for tighter regulations? Seems like a red flag to me.
The long and short of it is this… the banks are the ones lending the money, and they need to take accountability for the lending decisions they make. it is after all, their money.
One last comment, OFSI, as the enforcer, will dictate that the banks must follow the rules. They are not the legislative arm of the government, they cannot make law, only enforce it.