OSFI Director Peter Routledge said Canada’s housing market may be cooling due to stronger underwriting standards introduced more than a decade ago, but the system remains resilient.
“Back in 2012, OSFI secured the principle of loan underwriting for Sound Real Estate – Cuideline B-20,” Routledge said on Scotiabank Financials Summit. “They are just good housekeeping principles… Despite everything happening, we almost have an all-time low on mortgage crime and credit losses measured against loans.”
He pointed to the current dynamics, where about 25% of the list was pulled from the market. Routledge said that while this is an “almost secular high,” it shows that sellers are not over-leveraged and can continue to pay without lowering the price.
Asked about the risks in the apartment market, especially in Toronto and Vancouver, he added: “The oversupply and prices have dropped. This is not necessarily a negative result for everyone in the country.”
He added that the apartment is a “entry place for young Canadians” and lower prices can improve access. “If prices fall and bring young Canadians so they can afford it…not the market and not the regulator, then shouldn’t it be handled?”
“If there is a more serious release in the real estate market, there is plenty of capital in the system to absorb shock and make it a manageable situation for families and financial institutions,” he said.
In the phone in the bank buffer of OSFI
Discussing the shift from housing to bank capital, asking how Routledge determines the fairness of the domestic stable buffer (DSB).
Currently, the DSB is set at 3.5%, adding it to the world’s Basel III at least 8% to set the floor in Canada to a systemically important bank’s CET1 ratio of 11.5%. In fact, the six major banks are well above this level, with an average CET1 ratio of about 13.7%.
“Having a good full-body important bank has a floor ratio of 11.5% compared to the CET1 ratio,” Routledge said. “If the bank reports 11.51%, your supervisor has no problem. If it is 11.49%, we have a common problem that can be solved.”
He stressed that the higher capital held today is not imposed by OSFI, but reflects the board’s own decisions. He added: “All credits of conservatism and prudence belong to the board and senior management, not to us.”
Routledge was asked what OSFI needs to put the buffer down. He stressed that household debt indicators remain the main driver.
“If household debt to income to debt ratios improve, it would be a significant driver of better stress test results, so the DSB is lower,” he said.
He also pointed out that profitability is an important factor. “If income increases, if income is higher, the stress test is not that dark,” Routledge explained.
Meanwhile, he warned that today’s stress tests still justify the current 3.5% setting, suggesting recent IMF reviews of the Canadian financial system. He noted that the IMF’s systematic stress test is consistent with OSFI’s own work. “They are dark. That’s how we’re going to get 3 and a half. That’s the insurance we need,” he said.
Credit Union: Looking for Quebec
Discussions also turned to credit unions, with Rutridge asking about the wave of institutions primarily in western Canada, considering federal oversight.
He said credit unions play a major role by providing Canadians with more financial services options, and OSFI’s job is to ensure options for federal continuity without unnecessary barriers.
He noted that Canada has about 9 million credit union members, of which about 5 million are in Quebec. “To a certain extent, the common model requires federal continuation to increase efficiency to provide competition, then we should do everything we can to ensure that the road is stable and no longer exceeds what it is necessary,” Routledge said.
He pointed out that Quebec’s system is an example of how the model succeeds. “Quebec’s credit union system generates enough regular income to increase balance sheets through nominal GDP, invest in its platform, and pay reasonable dividends to its member shareholders,” he said. “This is a great case study for credit unions outside Quebec.”
Other gains
Routledge also talked about several other topics during the discussion:
- Commercial and Residential Loans: Routledge notes that the risk weight of household mortgages is much lower than that of commercial loans (10-15%) (35%–60%). This has led banks to prefer residential over commercial loans for decades, he said, and suggested that rebalancing might be healthy: “Perhaps more commercial risks are good not only for banks, but for the country.”
- Blanket Assessment: This happens when lenders rely on bulk property valuations (usually from early stages in the development process) rather than personal assessments at the time of transactions. Routledge estimates they make up only 1.6% of mortgages. He reminded lenders that OSFI’s B-20 guidelines require mortgage valuations to be up-to-date and reasonable, adding that the stale assessments are inconsistent with these principles.
- Unregulated and slightly regulated lenders: Private lenders and mortgage investment firms make up about 10% of mortgage loans, but only 1% of outstanding balances. Routledge says the role of OSFI is to monitor spillovers mainly through adversary risk: “First, don’t harm. If a private lender wants to take higher risks to get higher returns, it’s not a system problem, and I don’t think we need to react – unless the risk flows through the adversary’s risk.”
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Financial Institutions President Osfi Peter Routledge Regulatory Scotiabank Financials Financials Summit’s Blanket Assessment Society Domestic Stable Buffer DSB Office
Last modified: September 3, 2025
