TORONTO — The head of Canada’s banking regulator says the recent decision to relax a mortgage stress test rule was shaped in part by concerns about public perception of the agency.

Superintendent of Financial Institutions Peter Routledge says the removal of the need to stress test uninsured mortgages when borrowers are making a straight switch between lenders came after the regulator heard concerns from both consumers and brokers about it being so directly involved in bank lending decisions.

Routledge, speaking at a Global Risk Institute summit, says public perceptions that the Office of the Superintendent of Financial Institutions (OSFI) might be moving beyond its mandate of overseeing financial institutions could risk undermining confidence in the regulator.

The removal of the stress test requirement, set to take effect Nov. 21, comes as the regulator is also looking at a broader switch away from the wider B-20 stress test on individual borrowers, to a system that would regulate mortgage risk at a bank portfolio level.

The regulator will next year be testing the alternative system, which sets limits on how much banks can lend to borrowers with a high loan-to-income ratio, before deciding whether to add it to the current mortgage rules or replace the existing stress test.

While OSFI’s decision to relax its mortgage rules came shortly after the federal government also eased lending rules, Routledge says he felt only public, not political, pressure to make the change.

This report by The Canadian Press was first published Oct. 2, 2024.

Ian Bickis, The Canadian Press