A week after proposing new rules that could allow banks to free up more capital for lending to Canada’s real estate market and small and medium-sized businesses, the head of the country’s top banking regulator says he’s open to further “experiments” aimed at strengthening the economy.
“We’re not done,” Peter Routledge, head of the Office of the Superintendent of Financial Institutions (OSFI), said at a press conference on Monday. “This is an annual — maybe even ‘annual’ is too long a periodicity — this is just a regular discipline. What experiments can we make to help the financial system finance this shift in the economy?”
United States tariffs have compelled Canada to change its economic model to one that speeds up the building of mines and energy-related projects. Routledge expects Canada’s financial system to finance that change since the sector has built up substantial capital cushions.
He said he has been in touch with the companies his office regulates, such as banks and insurers, to better understand what he can do to “make it easier for you guys to help the country.”
On Nov. 20, OSFI proposed lowering the risk weight for loans given to small and medium-sized businesses to 75 per cent from 85 per cent.
Risk weights indicate how risky a loan could be. The higher the risk, the more money banks need to keep aside for safety in case a loan goes bad.
OSFI also wants to change the risk weights of certain loans provided to the real estate sector. For example, it wants to lower the base risk weight for low-rise residential real estate to 130 per cent from 150 per cent to “better reflect the lower risk nature of low-rise residential builds.”
The risk weights for loans given to projects where the level of pre-sales is equal to or greater than 75 per cent would also be much lower.
These proposals are now in a 90-day public consultation period.
Routledge is open to doing more and has urged financial institutions to reach out with ideas.
“I would rather take their ideas than dream them up on our own. People closer to the businesses would be better at that than us,” he said. “Are there verticals in the banking system where they think there’s this big push in a particular industry and we need more capital relief?”
Routledge said OSFI may be interested in areas such as defence, infrastructure — like pipelines or ports — and the green energy sector.
“The post-financial crisis discipline was to get up protections because the system wasn’t safe enough, so we did that,” he said. “Having done that, the question is how do we adjust and tune the system to a new economic environment as proactively and safely as we can?”
• Email: nkarim@postmedia.com