Country healthy despite ‘turbulent times’
Carrie Tait
Sun
Federal Finance Minister Jim Flaherty speaks to the media in Calgary on Wednesday. Photograph by : Leah Hennel, Canwest News Service
CALGARY – Federal Finance Minister Jim Flaherty shrugged off housing worries in Canada Wednesday, saying there is no bubble and that the subprime-mortgage woes crippling financial institutions in the United States are not threatening banks north of the border.
“There is no bubble in the Canadian housing sector,” he told reporters after speaking to roughly 400 people at a Calgary Chamber of Commerce event.
“That’s not been our concern. Our concern has been a tendency for longer amortization periods, like 40 years, and for purchasers putting very little money down. We’ve seen nothing in Canada like the U.S. subprime situation.”
The comments came a day after the Canadian Real Estate Association said the average June resale price for homes was down 0.4 per cent from a year earlier, the first decline in almost 10 years.
Flaherty reminded the audience that the government last week introduced plans to ditch government-backed mortgages with amortization periods longer than 35 years, and require that down payments total at least five per cent of the purchase price on these types of mortgages.
Despite tightening the rules on mortgage lending, Flaherty said he is not fretting about the health of Canada‘s banks, even as subprime-mortgage problems hammer U.S. financial institutions.
Canadian analysts, however, continue to speculate on what may happen if the crisis continues to pinch banks — particularly Canadian Imperial Bank of Commerce — in this country.
“Our banks are well capitalized in Canada,” Flaherty said. “I’m satisfied they are well capitalized in accordance with the requirements.”
He said he has been in contact with bank CEOs and regulators since the subprime problems began to sweep the market last August.
This comes as California-based IndyMac Bancorp Inc. customers have been lining up to yank their money out of the bank, prompting U.S. regulators to take it over last week. And Fannie Mae and Freddie Mac, two major U.S. mortgage institutions, are now being backstopped by the government there.
John Aiken, an analyst at Dundee Capital Markets, speculated this week on what may happen to CIBC should its slide, fuelled by credit exposure, continue to inflict pain.
“Should the regulator become concerned with its capital position and the bank is unwilling or unable to tap the market for incremental equity, CIBC could be forced into the hands of another financial institution as the best solvency alternative,” he wrote in a note to clients.
“We believe that the possibility of financial services consolidation is closer than most investors would allow and significantly closer than it was even three months ago.”
Flaherty, however, reiterated the Conservatives’ stance on reopening the bank merger debate.
“Bank mergers have not been a priority for our government and that remains the case,” he said.
Further, while he acknowledged that the economy is going through “turbulent times,” it remains healthy.
“Our economy is strong,” he told the audience.
© The Vancouver Sun 2008
