It is second nature to me, both as a risk manager and a parent, to focus on the worst-case scenario first. That makes for an, shall we say, interesting size of my amygdala*.
What I am dancing around is that there was some good news that almost slipped by unnoticed, so The Risk Report is bringing you those today.
Canadian homeowners are resilient.
They have fared much better through high inflation and interest rates—meaning that they have paid more off and defaulted less—than feared.
The head of the Canadian Office of the Superintendent of Financial Institutions, Peter Routledge, is pleasantly surprised, he said to Bloomberg.
That also means that OSFI is less concerned that the government’s announced changes to the Canadian mortgage system will cause an overheating debt-apalooza that will end in tears and moose-wringing.
From the end of this year the government will allow for 30-year loans to first-time home buyers and those getting a newly built home (up from 25 years) as well as raise the cap of mortgage default insurance to C$1.5MN (from C$1MN).
With this insurance, home buyers can bid on houses even if they don’t have 20% for down payment. And without this insurance, OSFI will no longer require a second stress test of the borrower when they switch from one bank to another.
And since there is hope (and evidence) borrowers and banks will be fine, OSFI is confident that the implementation of capital floor rules (good ole Basel III) can go ahead from mid-2025, after it was delayed because of the risk that the new rules would stifle credit supply and economic growth.
In other words: good news all-around, eh!
*The amygdala are the two(!) almond-shaped nuggets in the brain where the flight, fight, fawn, or freeze response lives. Long-term stress causes the amygdala to grow, and regular meditation and yoga have been clinically proven to shrink, in particular, the right amygdala.
Regitze Ladekarl, FRM, is FRG’s Director of Company Intelligence. She has 25-plus years of experience where finance meets technology.
This article is part of the FRG Risk Report, published weekly on the FRG blog. To read other entries of the Risk Report, visit frgrisk.com/category/risk-report/.