While Australia’s captured prudential regulator, the Australian Prudential Regulatory Authority (APRA), is busy cutting lending standards, in the form of the shredded interest rates buffer, just months after the Hayne Royal Commission lambasted Australia’s banks for shoddy lending, and just five months after APRA said is was permanent. The head of Canada’s state-run mortgage insurer, the Canada Mortgage and Housing Corporation (CMHC), is taking the opposite stance, advising the Canadian Government to maintain strong macroprudential controls to prevent irresponsible lending, including maintaining Canada’s interest rate buffer.
In a letter to Canada’s Standing Committee on Finance, CMHC President & CEO Evan Siddall, warned committee members that any watering down of macroprudential controls would increase household debt, make housing less affordable, raise inequality, and risks blowing-up Canada’s banking system:
These policies have been wrongly accused of having “unintended consequences.” Public servants spend a great deal of time evaluating consequences and how behaviours might change as a result of policies in normal times and in times of financial instability — a state that is too often ignored. The call by some people for relief from the so-called “unintended consequences” of the stress test for mortgage renewals provides a good example. At first glance, this seems unfair.
