The Office of the Superintendent of Financial Institutions Canada (OSFI) of Friday released for public consultation proposed updates to the regulatory capital requirements for loans secured by residential real estate.
The proposed changes “will ensure that capital requirements remain prudent in periods where house prices are high relative to household income and/or house prices are increasing rapidly in nominal terms,” OSFI says in a statement accompanying the proposals.
Among the proposed changes, OSFI is seeking to introduce a risk-sensitive floor on internally modelled capital requirements, “to take into account periods where the value of properties pledged as collateral becomes less certain.”
Currently, the Big Six banks and HSBC Canada are using internal models to calculate their capital requirements for residential real estate, OSFI notes. The proposed changes would apply to federally regulated banks that use the internal ratings-based approach to credit risk.
“These updates provide a measured and forward looking response to the changing risks occurring in the Canadian mortgage market,” OSFI says.
The proposals are out for public consultation until June 10. The changes will take effect November 1.