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Provincial Regulators Are Trying to Decide: Increase Stress Testing or Not?

Provincial Regulators Are Trying to Decide: Increase Stress Testing or Not?

by Yvonne von Jena | February 5, 2018


Quebec’s regulator, the Autorité des marchés financiers (AMF), could apply the same stress testing and mortgage rules to credit unions in its province, as was recently applied to as Canada’s big banks by their regulator. Per Reuters, the country’s other provinces with strong property markets (that is, Ontario and British Columbia) are split on whether to require such tougher stress tests for the provincial institutions they regulate.

The National Requirements: The Impact on Credit Union Market Share

The expectation by many economist and industry insiders is that the new stress testing requirements under OSFI’s B-20, which applies to the banks and most nationally regulated players, will result in business moving to credit unions and other provincial players, where the same requirements do not apply.

The B-20 rules imposed by OSFI could disqualify up to 10% of buyers, based on estimates by the Bank of Canada in November, possibly pushing $15 billion in mortgage demand to less regulated lenders.

Although business could flow to credit unions, the expectation by some is that this is limited to the capital they have available. Currently, about 17% of outstanding uninsured mortgages in Canada is held by credit unions. In Quebec, credit unions have a much larger share.

Quebec

Quebec's AMF could apply the same stress testing and mortgage rules to credit unions in this province, although a final decision has not yet been taken by the province.

Sylvain Theberge, a spokesman for the AMF said it has held consultations to harmonize guidelines for mortgage lending by Quebec credit unions with OSFI’s B20 by March.

“The government will be ready for the deadline of March 2018,” said Audrey Cloutier, a spokeswoman for Finance Minister Carlos Leitao.

Other Provinces

Per Reuters, the country's other provinces with strong property markets are split on whether to require such tougher stress tests for the institutions they regulate.

For example, Financial Institutions Commission of British Columbia (FICOM), the regulator in British Columbia, said the province is not considering changes to its underwriting guidelines.

In Ontario, Financial Services Commission of Ontario (FSCO) is in a wait-and-see mode, “giving credit unions there more room to maneuver with its borrowing terms” per Reuters.


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