On December 11, 2015 the Office of the Superintendent of
Financial Institutions Canada (OSFI) released a letter notifying
stakeholders that it is planning to update the regulatory capital
requirements for residential mortgages and home equity lines of
credit. It is one component of the broader attempt on the part of
the government to mitigate risks associated with rapid rise in
house prices and high ratio of debt to income borrowing. The letter
was released on the same day that Minister of Finance, Bill
Morneau, announced rules that increase the minimum down payment for
newly insured mortgages from 5% to 10% on the portion of house
prices above $500,000 and Canada Mortgage and Housing Corporation
(CMHC) announced changes to its securitization programs.
The regulatory capital requirements are in place to mitigate the
risk that federally regulated financial institutions face in loss
scenarios. Currently, in recognition of the government backstop on
mortgages, federally regulated deposit-taking institutions are
subject to very low capital holding requirements on mortgages.
The planned changes will affect the deposit-taking institutions
using internal models for mortgage default risk, which include Bank
of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of
Commerce, HSBC Canada, National Bank of Canada, Royal Bank of
Canada, and Toronto-Dominion Bank. For these banks, OSFI plans to
implement a risk-sensitive floor for losses in the event of default
that will be tied to increases in local property prices and/or to
house prices that are high relative to borrower income.
The planned changes will also affect private mortgage insurers,
Canada Guaranty Mortgage Insurance Company and Genworth Financial
Mortgage Insurance Company of Canada, using standardized capital
requirements. For these insurers, a new standardized approach that
updates the capital requirements for mortgage guarantee insurance
risk will be introduced. Both planned changes are devised to
provide increased protection to depositors, policyholders, and
OSFI has not yet released any guidelines in this respect, but
expects to have final rules in place no later than 2017. Prior to
any such changes and keeping with usual practice, OSFI will engage
the federally regulated financial institutions and other
stakeholders in a directed consultation followed by a broader
public consultation in 2016.
The foregoing provides only an overview and does not
constitute legal advice. Readers are cautioned against making any
decisions based on this material alone. Rather, specific legal
advice should be obtained.
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).