Canada’s housing market may be cooling, but the system remains resilient thanks to stronger underwriting standards introduced more than a decade ago, says OSFI superintendent Peter Routledge.
“Going back to 2012, OSFI put in place principles for sound real estate secured lending underwriting—Guideline B-20,” Routledge said at the Scotiabank Financials Summit. “They’re just good housekeeping principles… and despite everything that’s happened, we are near all-time lows for mortgage delinquencies and for credit losses measured against loans.”
He pointed to the current dynamic where about 25% of listings are being pulled from the market. While that’s “near secular highs,” Routledge said it shows sellers aren’t over-leveraged and can continue making payments without slashing prices.
Asked about risks in the condo market, particularly in Toronto and Vancouver, he added: “There’s a little bit of excess supply and prices are coming down off all-time highs. That’s not necessarily an adverse outcome for everyone in the country.”
Condos are “starter places for younger Canadians,” he added, and lower prices can improve access. “If prices come down and bring young Canadians in so they can afford it… shouldn’t the market, not the regulator, deal with that?”
“If there is a more serious downdraft in the housing market, there’s ample capital in the system to absorb that shock and make it a manageable situation for households and financial institutions,” he said.
Inside OSFI’s call on bank buffers
The discussion turned from housing to bank capital, asking Routledge how OSFI decides what constitutes a fair level for the domestic stability buffer (DSB).
The DSB is currently set at 3.5%, which is added to the global Basel III minimum of 8% to set the Canadian floor for systemically important banks at a CET1 ratio of 11.5%. In practice, the big six banks are well above that level, with average CET1 ratios around 13.7%.
“The floor for a well-capitalized systemically important bank is 11.5% on the CET1 ratio,” Routledge said. “If a bank reports 11.51%, you have no problem from your supervisor. If it’s 11.49%, we have a shared problem to resolve.”
He stressed that the higher levels of capital held today are not imposed by OSFI but reflect boards’ own decisions. “All credit for that conservatism and prudence belongs to boards and senior executives, not us,” he added.
Routledge was asked what it would take for OSFI to bring the buffer down. He emphasized that household debt metrics remain the key driver.
“If household debt to income and debt service ratios improved, that would be a significant driver of better stress test results and therefore a lower DSB,” he said.
He also pointed to profitability as an important factor. “If earnings go up, if earnings are higher, the stress tests aren’t as dark,” Routledge explained.
At the same time, he cautioned that today’s stress testing still justifies the current 3.5% setting, pointing to the International Monetary Fund’s recent review of Canada’s financial system. The IMF’s systemic stress tests, he noted, were aligned with OSFI’s own work. “They are dark. And that’s how we got to 3 and a half. That’s the insurance we need,” he said.
Credit unions: looking to Quebec
The discussion also turned to credit unions, with Routledge asked about the wave of institutions, mainly in Western Canada, considering a move to federal oversight.
He said credit unions play an important role by giving Canadians more choice in financial services, and that OSFI’s job is to make sure the option of federal continuance is available without unnecessary hurdles.
He noted that Canada has roughly 9 million credit union members, about 5 million of them outside Quebec. “To the extent the mutual model requires federal continuance in order to gain efficiencies to provide that competition, then we should be doing everything we can to make sure that road is as smooth and no longer than it has to be,” Routledge said.
He pointed to Quebec’s system as an example of how the model can succeed. “The credit union system in Quebec generates sufficient recurring earnings to grow the balance sheet with nominal GDP, invest in their platform, and pay a reasonable dividend to their shareholders who are also their members,” he said. “That is a good case study for credit unions outside Quebec to learn from.”
Other takeaways
Routledge also touched on several other themes during the discussion:
- Commercial vs. residential lending: Routledge noted that risk weights for household mortgages are much lower (10–15%) than for commercial loans (35%–60%). He said that has nudged banks to favour residential over commercial lending for decades and suggested rebalancing might be healthy: “Maybe a bit more commercial exposure would be good not only for the banks, but good for the country.”
- Blanket appraisals: These occur when lenders rely on bulk property valuations, often from earlier in the development process, rather than individual appraisals at closing. Routledge estimated they account for just 1.6% of mortgages. He reminded lenders that OSFI’s B-20 guideline requires mortgage valuations to be current and reasonable, adding that a stale appraisal is not consistent with those principles.
- Non-regulated and lightly regulated lenders: Private lenders and mortgage investment corporations originate roughly 10% of mortgages but account for only about 1% of outstanding balances. Routledge said OSFI’s role is to monitor spillovers into the regulated system, mainly through counterparty risk: “First, do no harm. If private lenders want to take higher risk for higher returns, and it is not systemically an issue, I don’t think we need to react—unless that risk flows through counterparty exposures.”
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blanket appraisals credit unions domestic stability buffer dsb Office of the Superintendent of Financial Institutions OSFI Peter Routledge regulator Scotiabank Financials Summit
Last modified: September 3, 2025
