TORONTO (Reuters) - The Canadian government should tighten lending rules further to discourage consumers from taking on too much debt in an environment of low interest rates, the outgoing chief executive of Toronto-Dominion Bank (TD.TO) said on Tuesday.
Ed Clark, who will step down as CEO of Canada’s No. 2 lender in November, said the central bank’s low interest rates were appropriate given the economic outlook, but this meant the federal government should use administrative measures to check a jump in household debt that has followed a housing boom.
“It’s just not realistic in a competitive marketplace to say, ‘Why doesn’t one bank lead the way and change the rules?’ It won’t happen. This is a responsibility of the government,” he told Reuters.
“I get why they keep worrying about doing it. But I think you have to just keep touching this brake. As long as you run low interest rates, you then should be continuously leaning against asset bubbles.”
Canada’s Conservative government has stepped in four times since 2008 to tighten mortgage lending rules to cool a real estate market that flourished as the financial crisis ebbed.
The property rally sent the ratio of Canadian household debt to income to a record high of 164.1 percent in the third quarter of last year, though it has since eased slightly.
Clark, who has been chief executive since 2002 and gives his final speech as CEO on Tuesday, announced last year that he would retire. He will be replaced by TD Chief Operating Officer Bharat Masrani.
As CEO, Clark oversaw the expansion of TD’s U.S. retail banking operation, which includes more than 1,300 branches on the Eastern seaboard. While TD made nearly a dozen acquisitions to scale up that business, Clark said he expects the focus to be on organic growth going forward.
This is partly because “regulatory overhang” is higher now when buying U.S. banking assets, he said, adding that in the past regulators had been more supportive when TD looked at buying lenders with issues.
“Today, the regulator’s view is if you buy it, you own it. Even if you had nothing to do with the problem, that’s your problem. And so that makes a higher hurdle to make acquisitions.”
The Canadian bank is more interested in buying assets like loan books or small companies that can originate loans in sectors where it would be difficult to expand organically.
Looking forward, Clark said within five years he expects wealth management will make up a larger share of the bank’s business overall.
“Wealth will probably outgrow. I think we’re going into a demographic phase and a phase in the economy where you had a long period of lending, personal lending, growing quite rapidly. I think that has to slow,” he said.
Editing by Bernadette Baum and Matthew Lewis