The Office of the Superintendent of Financial Institutions (OSFI) said Canadian banks remain resilient despite the risk environment cast by trade tensions, rising unemployment and ongoing housing market pressures.
The regulator warned in its autumn half-year Annual Risk Outlook (ARO) update that economic weakness was weighing on cash flows, collateral values and confidence.
OSFI specifically cited uncertainty about tariffs, which has slowed activity among lenders, borrowers, consumers and suppliers. “The lack of clarity on tariffs is causing unease among consumers and businesses who are highly sensitive to the outcome of current negotiations,” the report said.
Real estate market pressure intensifies
OSFI also highlighted continued weakness in the housing market, with activity remaining below the 10-year average and prices continuing to soften.
“Canada’s condo market, particularly in the Greater Toronto Area and Metro Vancouver, is under pressure and has worsened since the ARO highlighted this issue in the spring,” the regulator noted.
Delinquency rates are also returning to pre-pandemic levels, particularly among fixed-payment adjustable-rate mortgages, self-operated loans and investor portfolios.
Toronto leads major centers in delinquency rates, and the condo market has emerged as the weakest link in the market. An oversupply of new multi-unit buildings is driving down prices and could reduce investor interest in future projects, putting pressure on collateral values and employment in the construction industry.
While the risk of a mortgage payment shock has eased due to the Bank of Canada’s seven interest rate cuts since June 2024, OSFI warned that some borrowers renewing their loans at historically low rates will still face significant increases.
OSFI said nearly one-third (31%) of all mortgages outstanding as of May 2025 will be renewed in 2027.
Regulation focuses on underwriting and liquidity
In response, OSFI said it is increasing its oversight of mortgage underwriting, including the B-20 guidance on standards for prudent lending and the use of comprehensive appraisals. This summer, regulators stepped up expectations for timely and proven property valuations to ensure collateral values are realistic.
It is also monitoring how lenders adapt to the new loan-to-income (LTI) measure and manage the risks associated with variable-rate fixed-payment mortgages.
“We are closely reviewing compliance with the newly implemented loan-to-income ratio metric and assessing mortgage lenders’ VRMFP risk management practices,” the report said.
On the funding side, OSFI is advancing revisions to its liquidity adequacy requirements and internal liquidity adequacy assessment process, with additional consultations due in 2026. Regulators are also paying closer attention to how institutions manage liquidity in their overseas operations.
“Given our concerns about unexpected economic outcomes and the potential for continued uncertainty to lead to broader financial market strains, we are focusing on institutional preparedness to respond to stressful events,” OSFI said.
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Blanket Assessment Apartment Market Delinquency Fixed Payment Variable Mortgage Housing Risk Loan Income Cap LTI Office of the Superintendent of Financial Institutions OSFI Regulator
Last modified: October 9, 2025
