Blog by Andrew Peck

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Mortgage crisis? Not here, thanks to Canada’s banking system

Mortgage crisis? Not here, thanks to Canada’s banking system

Canada’s risk-averse banking system was ranked the soundest in the world, by the World Economic Forum in 2008. The U.S. banking system ranked 40th and Greater Britain ranked 44th.

What protects us? Unlike other countries around the globe, Canada’s five major chartered banks have a significant amount of capital or equity in reserve.

Canada’s federal banking regulator, the Office of the Superintendent of Financial Institutions, requires banks to hold seven per cent of their capital in reserve – our insurance policy against potential loses.

Compared to other banks worldwide, Canadian banks are leveraged at 18 to 1, while U.S. banks are leveraged at 26 to 1 and European banks are leveraged 61 to 1, according to a Newsweek article.

As for our solid housing market, Canada has never had the widespread sub-prime mortgage market problems and never will thanks to strict rules for government-insured mortgages, including these new rules.

  • Borrowers with less than a 20% downpayment are required to meet standards for a five-year fixed rate mortgage even when choosing a lower interest or short-term mortgage.
  • Borrowers can re-finance up to 90% of the value of their home, instead of the previous 95%.
  • Borrowers buying a non-owner-occupied property for speculation will require a minimum down payment of 20% instead of the current 5%.

Canada’s fiscal policies and solvent banking system means our mortgage market will remain on firm footing

 

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