Evidence of meeting #84 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was risks.
A recording is available from Parliament.
11:55 a.m.
Conservative
Adam Chambers Conservative Simcoe North, ON
That's fair enough.
Does OSFI have a view or model of what it thinks house prices would or could correct to over the next six months?
11:55 a.m.
Superintendent, Office of the Superintendent of Financial Institutions
I was a financial analyst for many years, and in predicting housing markets I probably have a higher error rate than in any other prediction I made.
Bluntly put, no.
11:55 a.m.
Conservative
Adam Chambers Conservative Simcoe North, ON
That's fair enough, but my question is....
With respect, you gave an interview. You were on a podcast, and you said that Canadians could expect to see a 20% correction in real estate prices.
11:55 a.m.
Superintendent, Office of the Superintendent of Financial Institutions
Yes.
11:55 a.m.
Conservative
Adam Chambers Conservative Simcoe North, ON
That was, I think, in August 2022. It was just eight to 10 months ago.
April 20th, 2023 / 11:55 a.m.
Superintendent, Office of the Superintendent of Financial Institutions
Call it a year.
11:55 a.m.
Conservative
Adam Chambers Conservative Simcoe North, ON
Yes, it might have been a year.
Is that the OSFI's view? Was that your panel's view?
11:55 a.m.
Superintendent, Office of the Superintendent of Financial Institutions
From memory, what I believe I was saying was that given the pressures in the economy and the pressures with inflation, I could see a scenario in which house prices in specific cities could fall by 10% to 20%.
The spirit of the answer to the question was that Canadians should prepare themselves for 10% to 20% corrections in home prices.
We stress test far beyond that, so we—
11:55 a.m.
Conservative
Adam Chambers Conservative Simcoe North, ON
That's fair enough.
I have limited time, and I have one final question.
Would house prices fall more or less if amortizations were not being extended?
11:55 a.m.
Superintendent, Office of the Superintendent of Financial Institutions
Extended amortizations are happening as a result of the contractual provisions in the mortgage products.
11:55 a.m.
Conservative
Adam Chambers Conservative Simcoe North, ON
If banks did not have that flexibility, would they fall more or less?
11:55 a.m.
Liberal
The Chair Liberal Peter Fonseca
Mr. Chambers, that is the time. I think Mr. Routledge has answered very well given the number of questions he's gotten in the last minute.
11:55 a.m.
Conservative
Adam Chambers Conservative Simcoe North, ON
Can you provide that answer in writing to the committee, and an analysis, if you would like the additional space?
11:55 a.m.
Superintendent, Office of the Superintendent of Financial Institutions
Yes.
11:55 a.m.
Liberal
The Chair Liberal Peter Fonseca
That's great. Thank you, Mr. Chambers.
For our final questioner now, we're going to Mr. Turnbull, please, for five minutes.
11:55 a.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
Thank you, Chair. It's an interesting line of questioning there.
Getting back to the green finance topic, I'll ask a few questions about the B-15 guideline to start, which I've read and reviewed. I think it has many merits, and I'm really happy to hear that it's evergreen.
A few of the comments from some of the stakeholders across Canada that I've spoken to—in particular, some of the environmental groups—have talked about double materiality. It's this concept that we often assess risk on financial institutions that is coming in due to climate change, but we also should be looking at the outflow of the actions and activities that financial institutions are responsible for in terms of allocating capital and keeping us on track with achieving our net-zero commitment. This is the flip side of it.
Do you think that the B-15 guidelines in some iteration in the future will take that into consideration as well?
11:55 a.m.
Superintendent, Office of the Superintendent of Financial Institutions
Is the question whether we would alter B-15 to reflect an intent to shift allocation of capital away from one industry to another? Is that fair?
11:55 a.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
Yes, perhaps. I think there are multiple questions in there, but yes.
11:55 a.m.
Superintendent, Office of the Superintendent of Financial Institutions
The answer is no, we wouldn't do that. What we aim to do with our analysis and with our guidelines is to ensure that banks and insurance companies and financial institutions are quantifying climate risk and managing their books in a responsible way.
Could a by-product of that over time be a shift away from greenhouse gas-emitting energy extraction toward renewables? Yes, it could, but that is not what we set out to do. What we set out to do is to create a financial system that's resilient to climate change.
11:55 a.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
Would obliging them to allocate capital in accordance with the fundamental principles of addressing climate change not achieve greater stability within the financial system though, and therefore be within your mandate?
11:55 a.m.
Superintendent, Office of the Superintendent of Financial Institutions
We have a strongly held view that in pursuing climate change as a financial system risk and ensuring that banks are managing it and quantifying it appropriately, that outcome, which is an outcome you would not otherwise see, will occur.
From our perspective, we're prudential regulators. We want to ensure that our financial institutions are managing their risks intelligently and appropriately. We don't want to be seen as putting our thumb on the scale for any one particular risk area.
Noon
Liberal
Ryan Turnbull Liberal Whitby, ON
Thank you.
What about transition plans? I know there have been conversations about those. They are not explicitly required at this time within the B-15 guideline, but many internationally have talked about the importance, in terms of climate risk governance, of obligating financial institutions to create and be accountable to transition plans.
Would you agree with that? Do you think that will be included in a future iteration of the B-15 guideline?
Noon
Superintendent, Office of the Superintendent of Financial Institutions
I'll ask our B-15 expert to answer.
Noon
Managing Director, Climate Risks, Office of the Superintendent of Financial Institutions
I would just correct the committee. Transition plans are required in B-15, and what we've also added, which is different from what other jurisdictions have, is that the transition plans also consider not just transition risks but physical risks. You'll see in B-15 specific reference to mandatory transition plans, including physical risks. I'd just like to correct the committee on that observation.