Canada: Financial Sector Assessment Program-Technical Note-Deposit-taking Sector: Regulation and Supervision
IMF Staff Country Reports, January 24, 2020
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Bibliographic details
- Published: January 24, 2020
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781513527192.002
Overview
- Publication date: January 24, 2020
- Focus: sizeable mortgage exposures and persistent housing market imbalances.
- Scope of review: oversight of deposit-taking institutions (DTIs) in federal jurisdiction, and in British Columbia and Québec.
- Pages: 58
Key findings
- There are many good, well-functioning mechanisms in place for cooperation among authorities.
- Areas warranting improvement:
- Policy development, especially between the Office of the Superintendent of Financial Institutions (OSFI) and Autorité des marchés financiers.
- Coordination of data collection across agencies.
- Exchange of useful prudential information between different agencies.
- Mortgage-related risk assessments:
- Risk weights on mortgage lending appear too low for insured mortgages.
- Risk weights may not be sufficiently through-the-cycle for banks using the Internal Ratings Based approach.
- Credit risk monitoring:
- A common forbearance definition and monitoring framework for credit risk (in the context of loan restructuring by DTIs) should be adopted across all jurisdictions in Canada.
- A similar definition, in line with the guidance of the Basel Committee for Banking Supervision, and consistent data will help improve risk monitoring given the importance of debt restructuring for managing problem real estate exposures.
- Asset pledging:
- OSFI’s guideline on asset pledging should ensure enough unencumbered assets to support the claim of depositors.
Policy recommendations
- Explore how to remove barriers that prevent close and meaningful cooperation among federal and provincial authorities.
- Strengthen coordination of data collection and exchange of prudential information between agencies.
- Reassess risk-weighting for mortgage exposures:
- Review treatment of insured mortgages to ensure risk weights adequately reflect risk.
- Ensure Internal Ratings Based approaches capture through-the-cycle credit risk for mortgage lending.
- Standardize forbearance and restructuring definitions and monitoring across jurisdictions:
- Adopt a common forbearance definition aligned with Basel Committee guidance.
- Improve consistency of data on loan restructuring and forbearance to enhance risk monitoring of real estate exposures.
- Ensure OSFI guidance on asset pledging preserves sufficient unencumbered assets for depositor protection.
Technical observations and context
- Review spans federal jurisdiction and provincial oversight in British Columbia and Québec.
- Emphasis on improving policy coordination and data consistency to address mortgage and housing market vulnerabilities.