It’s time to hit “pause” on any further housing market rule changes and wait to see how recent policy moves play out in the market, the head of Canada’s largest bank told BNN on Friday.
While mortgage rules have been tightened and governments have made moves against foreign buyers and speculators, a proposal to have banks shoulder more housing market risk has been left simmering on the side burner.
“I think it’s important to pause given the rapid growth we’ve seen, certainly in core markets like Toronto and Vancouver, to understand the impact of current regulations,” Dave McKay, president and CEO of Royal Bank, told BNN. “It takes a while for regulations to have a true impact.”
Watch BNN's interview with Dave McKay Friday at 4:10 p.m. ET.
The most recent change was to usher in strict new mortgage stress tests, which by some measures cut the average family’s purchasing power by some 20 per cent. Since the new rules took effect on Jan. 1, home buying activity in key markets has pulled back significantly.
With borrowing costs also expected to rise this year, McKay says policymakers need to consider “the total economic play of all variables, and not just the policy change.”
One policy move that’s been floated in recent years is lender-risk sharing, basically having banks take on greater exposure to insured mortgages if a homeowner defaults on that loan. Currently, an insured mortgage is backstopped by the insurer, such as Canada Housing and Mortgage Corp.
Under lender-risk sharing, the banks would be exposed to some of that loss – perhaps through a deductible similar to what drivers are expected to pay when repairing damage from a collision.
While that proposal has been floating around for several years, McKay says he hasn’t heard “a lot of dialogue recently on lender-risk sharing.”
“I think the system has worked very well for Canadians, and very well for taxpayers, and very well for lenders,” said McKay of the current mortgage insurance regime.
“We have to think long and hard; why are we changing it, how are we changing it, is it going to be a better system for all stakeholders including consumers who are purchasing homes?”
MORE FROM MCKAY
On the economy:
"I think the Canadian economy is strong right now. You see unemployment is low, Canadians are working. Expected GDP growth is expected to be about two per cent going forward – maybe a little lower. So there is some uncertainty in the marketplace being reflected in the volatility in the stocks right now: Geopolitical risks, predominately NAFTA risks. But overall the economy – both north and south of the border is strong."
On Canadian competitiveness:
"We have a competitiveness challenge that we have to look at, and it’s not just the tax issue and tax competitiveness, but how we get our goods and services to market. We have signed these free trade agreements, particularly with Europe and the TPP (Trans-Pacific Partnership) but we have a challenge getting products to market... We have to build infrastructure that allows us to leverage our resources so we can invest in the future."
On protecting consumer privacy
"We have been protecting the privacy of our customers for 150 years… In this new digital world where there are sensors in everything – it’s not just the platforms, it’s not just the banks, it’s the Internet of things: it’s your refrigerator, it’s your windshield wipers - it's everything that is collecting data, and how we use that. We are at an important stage in our society of having a dialogue of what do we collect, how do we collect it, where are the boundaries, are there regulations. I think we are at an important nexus."
On whether RBC will be recommending investing in cryptocurrencies
"Not anytime soon... I would have to understand what benefit does it have for society and a customer to hold a cryptocurrency. And, I couldn't look a customer in the eye and really articulate that now. That could change, the world is going to evolve, regulations could evolve but right now I could not look a customer in the eye and say this is really solving a real need."
On the when RBC will participate in Canada’s burgeoning Marijuana sector
"It’s a complex area that we are watching on the producer side and on the distribution side. It looks like it will become legal – looking at all the certifications on the producer and distributor side – so we have taken the position that given the complexity of the North American side we have been watching from the sidelines trying to understand this and do the right thing for all of our stakeholders so we are still in that evaluation mode."