How Should Banks Manage Lending Risks?
Official title: Consultative document on Credit Risk Management
Canada's banking regulator wants to overhaul how banks manage lending risks. Right now, the rules are scattered across dozens of documents. OSFI plans to consolidate everything into one guideline covering mortgages, commercial loans, and the growing world of non-bank lenders. They're asking whether these changes could affect competition or create unintended problems.
Why This Matters
Have a mortgage? This affects the rules banks follow when deciding whether to approve your loan. The guidelines also cover commercial real estate lending—which influences how much new housing gets built. If you're worried about housing costs or financial stability, this is the behind-the-scenes plumbing that matters.
What Could Change
OSFI would consolidate Guideline B-20 (mortgage underwriting rules) into a broader credit risk guideline. Banks may face stricter requirements for verifying income and managing exceptions. New rules would also govern how banks deal with non-bank lenders like private credit funds—a fast-growing sector that regulators worry could pose systemic risks.
Key Issues
- How can the guideline support economic growth while maintaining financial stability?
- Should commercial real estate lending have its own separate chapter given its unique risks?
- Would consolidating mortgage rules (B-20) into the new guideline create legal or operational problems?
- How should rules apply differently to small and medium-sized institutions?
How to Participate
- Review the consultation document and the backgrounder to understand the proposed changes.
- Email your feedback to creditrisk-risquedecredit@osfi-bsif.gc.ca by the deadline.
Submit Your Input
Questions Being Asked (6)
- How can we ensure that the CRM Guideline supports economic growth and promotes effective competition within the financial sector?
- Are the principles for sound credit risk management clear and straightforward? Are any important principles missing? Are these principles equally relevant for all OSFI-regulated institutions that extend credit, including insurers and pension plans?
- How can we best ensure proportionality in the application of these principles and segment-specific expectations? Are there specific considerations or concerns relevant to small and medium sized institutions?
- Would consolidating Guideline B-20 into the CRM Guideline create any unintended legal, financial or operational risks?
- Are there segments or subsegments of wholesale credit that require more attention and tailored guidance? Should we articulate standalone expectations for CRE lending in a separate chapter to address the unique risk characteristics of this asset class?
- What challenges and opportunities do institutions foresee from incorporating the FSB NBFI recommendations and BCBS counterparty credit risk principles into the CRM Guideline?