Canada mulls measures to curb private lenders’ growth By Reuters

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Exclusive: Canada mulls measures to curb private lenders’ growth

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By Matt Scuffham

TORONTO (Reuters) – Canada is considering subjecting private lenders to the same mortgage stress test rules faced by banks to prevent housing markets from being destabilized by the lenders’ rapid growth, three sources with direct knowledge of the matter said.

Officials from the Department of Finance, Bank of Canada, Office of the Superintendent of Financial Institutions (OSFI) and the Canada Mortgage and Housing Corp (CMHC) have discussed whether the private lenders’ expansion over the past year poses a threat to economic stability, said the sources, who declined to be named because the talks are confidential.

Measures to limit their growth were discussed at meetings of the Department of Finance’s Senior Advisory Committee, which provides guidance to Finance Minister Bill Morneau on issues including potential vulnerabilities in the financial system.

The meetings were chaired by Morneau’s deputy minister of finance, Paul Rochon, and attended by top officials from the Bank of Canada, the Department of Finance, OSFI and CMHC, the sources said.

One option would be for the federal government to ask provinces to apply the B-20 guidelines themselves, the sources said. Private lenders would then also need to provide stress tests on borrowers at a higher interest rate, or 200 basis points above their contracted rate, the same as the banks’ stress test, leveling the playing field.

A less severe alternative under consideration is to recommend provinces ensure private lenders run tighter checks on the ability of their borrowers to repay loans but stop short of imposing the actual stress test, the sources said.

A final decision on the plans has yet to be made.

The agencies all declined to comment.

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