UPDATE 4-Canadian watchdog sets stress test for smaller lenders

Tue Jul 26, 2016 5:23pm EDT
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* Test excludes Canada's biggest lenders

* Lenders test 50 pct Vancouver decline, 40 pct in Toronto

* Vancouver, Toronto property markets have surged since 2009

* Foreign buys in BC account for 6.6 pct June 10-July 14 (Adds details on lenders excluded from tests)

By Matt Scuffham

TORONTO, July 26 (Reuters) - Canada's banking regulator said on Tuesday it will require the country's smaller lenders to test how they would withstand a 50 percent drop in property prices in Vancouver and a 40 percent decline in Toronto.

The move, which builds on an existing requirement that lenders test their resilience to a 30 percent decline in home prices across all regions, is the latest in a series of measures by Canadian authorities to counter a risk posed by soaring house prices in the two Canadian cities.

However, the country's biggest six lenders - Royal Bank of Canada, Toronto Dominion Bank, Scotiabank , Bank of Montreal, CIBC and National Bank of Canada - are excluded from the test, as is Britain's HSBC, the regulator said.

Those larger institutions are subjected to regular stress tests by the regulator, the terms of which vary from bank to bank and are not made public, it said.   Continued...