20 December 2010

Mark Carney, the BoC Governor, has already warned borrowers and banks about the risks of high debt loads. It’s obvious that, in the end, it can influence not only certain Canadian borrowers, but the whole economy as well.
Now Ottawa is thinking about tightening mortgage rules. It may be the reducing of maximum length of a mortgage or higher down payments.
Another thing OSFI requires from banks is conducting more “stress testing”. Such stress tests can be very useful: the banks create theoretical scenarios and see how it influences their balance sheets and capital levels. It can be an unexpected increase of unemployment level or a house prices decline.
Actually, stress tests become even more necessary today because those with high debts are more vulnerable to economic changes. And, in the end, anything that hurts consumers will hurt the banks.

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