Finance Committee on Dec. 7th, 2023

[Chris Forbes]

The only thing I'd point to, which we discussed a bit, was the Airbnb aspect, the short-term rental tax measure and enforcement fund. It would be in that vein. That would be the one thing that comes to mind. There's nothing on real estate investment trusts in the fall economic statement.

[Mike Morrice, Green, Kitchener Centre, ON]

Can I ask whether officials in the minister's office have been seeking input and advice from the Department of Finance with respect to actions they may take with respect to the financialization of housing?

[Chris Forbes]

What we would just maybe clarify on process is that as we look forward and think about housing challenges, we will, as officials, provide advice to the minister about ways to improve overall housing supply—I think the theme in the fall economic statement is building more housing more quickly—with a focus on affordability, as the minister talked about earlier.

In that context, I think we will run through a gamut of issues. They could include consideration of issues like the overall fiscal room, timing and so on.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Forbes. That is well past the time. We're really running against the clock here, so we're going to go to MP Chambers, but thank you, and thank you to MP Blaikie for giving you that time.

Now we'll go to MP Chambers for five minutes, please.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Mr. Chair.

Welcome.

Many of the financial institutions are making significant provisions for increasing loan losses. Four out of five are double—in some cases, triple—this year what they were in the previous year, except for one. I won't name that institution, but you may know which one I'm speaking about.

I'm just curious. Is the finance department in regular discussion with these banks about the sizes of their loan loss provisions and about what may be driving these higher provisions?

[Chris Forbes]

I'll start, and then I'll turn to Grahame if he wants to add a bit.

Obviously, we ourselves talk to the financial institutions regularly and also with our colleagues at Office of the Superintendent of Financial Institutions. We do talk to them about overall conditions, what they are seeing and their concerns that they see looking forward. I'm not involved in any specific conversations about their precise loan loss provisions.

I don't know if Grahame has anything he would want to add to that.

[Grahame Johnson]

As the deputy minister said, we are in very frequent contact with the FIs and also with the OSFI. Certainly it's the OSFI's main responsibility to ensure that the capital levels, the liquidity levels, are sufficient so that these banks remain stable, robust and able to withstand shocks. That's very much the case. I don't want to get too technical, but notwithstanding the loan loss provisions, banks have CET1 capital ratios well above 12%, which is very strong.

In terms of what's driving them, I think that's also being watched. Again, I won't run through the gamut, but pain points include commercial real estate and things like auto loans, things where you would expect higher interest rates to bite.

I would point out that for mortgage loans, arrears remain at extremely low levels—in fact, lower levels than prepandemic—so there have not been stresses in that area. That, certainly for a number of the larger Canadian financial institutions, is by far the largest asset class on their books.

[Adam Chambers, Conservative, Simcoe North, ON]

I understand. Thank you very much.

I know the point about the default rate being historically very low, but the lessons from the United States in 2007 were that default rates were incredibly low until they weren't. Therefore, if the banks are increasing these loan loss provisions significantly, they are being effectively told by the OSFI to stop lending or to slow their lending. We're pushing people out of the highly regulated space and into the what I will call the shadow banking sector—people are familiar with that term.

I'm a bit nervous about the OSFI really clamping down on the regulated space and about the unregulated space getting bigger. My sense is that if there's a problem, it will emanate from the unregulated space first. I suspect that may be a better question for the OSFI, but that's something that concerns me.

Is the finance department aware of the new NRCan building code guidelines, Canada's building code?

[Chris Forbes]

It is, to some extent.

[Adam Chambers, Conservative, Simcoe North, ON]

They have been released. They were initially proposed in 2017. They have been released now. We're talking about affordability in housing. There are reports that suggest that the NRCan building code guidelines are going to add up to $50,000 per unit in cost for every home.

Is that a number that the Department of Finance has tried to determine on its own?

[Chris Forbes]

I'm not sure that I have seen those numbers around the $50,000 cost. I'm happy to.... If someone wants to share those with me, we can look at them.

[Adam Chambers, Conservative, Simcoe North, ON]

I would just recommend that you might want to ask that question about how much these new building code regulations would cost.

I'll leave you with two other recommendations.

One is that we should stop allowing borrowed money for down payments—i.e., using the equity in one property as a down payment for another.

The other would be to allow all Canadians to access their first home buyers' plan from their RRSP to help de-lever, which will cost the government zero money. That's something you could do for Canadians.

My final question in 20 seconds—because the minister and I didn't quite get to the bottom of it—is this: Does the minister provide the final sign-off on an investment from the Canada growth fund?

[Chris Forbes]

No.

[Adam Chambers, Conservative, Simcoe North, ON]

No.

[Chris Forbes]

The Canada growth fund is independent in their decision-making.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much. You're saying the minister does not provide—

[The Chair, Liberal, Peter Fonseca]

That's the time.

[Adam Chambers, Conservative, Simcoe North, ON]

I'm very close, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

I know, but I have to hold everybody right to the time on this round. That's what I said at the start. I'm sorry, but yes.

We usually do allow for a little bit more, but now we have MP Dzerowicz for five minutes.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

Thank you so much for being here to answer our questions.

I think many of us are worried about those who are trying to renew mortgages, so we're getting a lot of questions about that.

We've been talking about the mortgage charter that was introduced in the fall economic statement.

How does our federal government, or how are we planning to monitor financially regulated financial institutions? How are we going to monitor the implementation, the compliance, of the relief measures like those that are outlined in the mortgage charter?

[Grahame Johnson]

I won't repeat all the aspects of the charter, because I did that earlier.

It is designed to work in conjunction with the FCAC mortgage guidelines that were put out in July. I think it is through FCAC that Canadians who feel that they aren't being well treated by their financial institutions should seek some assistance. As was announced in the fall economic statement, we are moving to essentially a single ombudsman, a single point for an external complaints body where these issues can be addressed.

[Julie Dzerowicz, Liberal, Davenport, ON]

I appreciate that, but we're not asking for a report back from financial institutions. It's just—

[Grahame Johnson]

Financial institutions will report back to FCAC regularly.

[Julie Dzerowicz, Liberal, Davenport, ON]

Will they let us know how many people are actually—

[Grahame Johnson]

I would encourage you to reach out to FCAC, but yes, there is reporting going back to FCAC.