PrefBlog

Our poor little banks are complaining they don’t get enough subsidies:

Canada’s financial industry is urging the federal government to consider alternatives to proposals that could require them to take on a greater share of mortgage defaults through a deductible — calling it one of the biggest shakeups to hit housing finance in 50 years.

“This submission has questioned whether a deductible is the most effective way to rebalance risks within the housing finance system,” the Canadian Bankers Association said in a report on Tuesday. “The industry believes that policy alternatives should be considered to achieve the same ends, but are simpler and less disruptive to the existing lending structure.”

Policy alternatives could include allowing mortgage insurers to buy reinsurance, and increasing Canada’s covered bond limit to boost private funding of uninsured mortgages and reduce taxpayer support for mortgage financing, the association said. Covered bond issuance in Canada is capped at 4 percent of bank assets, which is lower than in most advanced economies, the group said.

I support allowing an increase in covered bond issuance, but it should be noted that this will not reduce risk: it will simply move it to the non-mortgage portion of the banks’ balance sheets since the assets used to cover will not be available to cover other liabilities in the event of bankruptcy. Additionally, I believe that Bankers’ Acceptances should be considered ‘covered’ money market instruments and this will soak up a good portion – at least! – of any increase in the cap.

I have no problems with allowing mortgage insurers to buy reinsurance (from similarly regulated bodies), provided that this does not lead to a reduction of capital in the system.

And that’s a wrap for another month!

This entry was posted on Wednesday, March 1st, 2017 at 12:44 am and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.