Mortgage Rules, Margins & Risk

Regulatory changes are keeping RBC’s Canadian banking head, David McKay, up at night.

And funny enough, his competitor, TD, has been one of the parties lobbying for regulatory changes—so says McKay’s TD counterpart, Tim Hockey.

These were among the facts shared by the two executives at a recent Barclays investor conference.

Below we summarize some of their other insights into mortgage rules, mortgage pricing and housing risk (our comments in italics)…

David-McKay-RBCHere are comment highlights from David McKay, Group Head, Canadian Banking, RBC:

On mortgage rules…

  • “…Regulatory changes certainly are top of my list when I think about what keeps me up at night.”
  • “The B-20 rules on the Canadian mortgage industry will slow (mortgage) growth.”
  • “…Having an amortization no greater than 25 years will cause first-time homebuyers to delay purchases. It will suppress some of the bidding intensity out there as it requires more cash flow to service that new home.”
  • “Much of this (regulatory tightening) is coming at us because we remain in a stimulative monetary environment with the inability to raise rates to slow the growth in consumer debt.”

    (Many quarters from now, the question will shift to whether regulators are willing to loosen the noose on mortgage underwriting if rates rise and/or housing demand fizzles more than expected.)
  • “…We're seeing some prudential regulation…that could become permanent regulation in the form of these B-20 rules or whatever other rules we're forced to look at…What will be the long-term drag on the business is unknown.”

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