Canadian banks could withstand severe housing crisis

Losses to banks would reach almost $18 billion

  0

by

Online only.

  0

TORONTO – Ratings agency Moody’s says that despite soaring home prices and household debt levels, Canadian banks could weather the effects of a severe housing crisis.

Moody’s says it conducted stress tests to determine the impact on major Canadian banks in the event of a 25 per cent drop in home prices countrywide.

The analysis also included an additional 10 per cent decline in Ontario and British Columbia, where prices have skyrocketed in recent years.

Who’s to blame for high home prices »

In a report published Monday, the ratings agency says that under such a scenario total direct losses to the banking system would reach almost $18 billion. However, Moody’s says the banks would be able to generate internal capital to cover those losses within several quarters.

The ratings agency says the negative impacts of a housing downturn in Canada would be reduced by a number of factors that differentiate Canada from U.S. mortgage markets.

Those factors include government-guaranteed mortgage creditor and lender insurance, as well as lower rates of subprime lending and a lower prevalence of certain kinds of securitization practices.

Canadian housing market puts us all at risk »

Leave a comment

Your email address will not be published. Required fields are marked *