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Housing Finance in Canada: Looking Back to Move Forward

Published online by Cambridge University Press:  01 January 2020

Lawrence L. Schembri
Lawrence L. Schembri*
Affiliation:
Deputy Governor, Bank of Canada
*
E-mail: lschembri@bankofcanada.ca
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Abstract

The Canadian system of housing finance proved to be resilient and efficient during the global financial crisis and its aftermath. The system's effectiveness is the result of a rigorous prudential regulatory and supervisory regime coupled with targeted government guarantees of mortgage insurance and securitisation products. In the post-crisis period, household debt levels and house prices have risen, owing, in part, to accommodative monetary conditions necessary to support the economic recovery. These vulnerabilities were mitigated by tightening macroprudential policy, specifically mortgage insurance rules, and strengthening mortgage-underwriting standards. Looking ahead, the housing finance framework needs to be adjusted and strengthened by rebalancing the risk exposures away from the government towards the private sector participants in the housing finance market. Although some measures have already been taken for this purpose, more adjustments may be needed to create the right incentives and achieve a sustainable rebalancing in risk exposures. Measures should also be considered to promote a liquid private-label mortgage securitisation market in Canada.

Keywords

housingmortgagesecuritisationCanadaR31R38G21
Type
Research Articles
Information
National Institute Economic Review , Volume 230 , November 2014 , pp. R45 - R57
Copyright
Copyright © 2014 National Institute of Economic and Social Research

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Footnotes

Prepared for the NIESR/ESRC Conference on ‘The Future of Housing Finance’ held at the Bank of England in London, England on 12 September 2014. The author would like to thank Allan Crawford, Césaire Meh, Jie Zhou, Lorie Zorn and two anonymous referees for helpful advice, Derrick Schroeter for superb research assistance, and E. Philip Davis for his support and for organising the conference. All errors are the responsibility of the author and the views expressed in this paper are those of the author.

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