THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Thursday, June 4, 2026
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 10:32 a.m. [ET] to study and report on matters relating to banking, commerce and the economy generally; and, in camera, for the consideration of a draft agenda (future business).
Senator Clément Gignac (Chair) in the chair.
[Translation]
The Chair: Good afternoon, honourable senators. I would like to welcome everyone with us today, as well as those listening to us on sencanada.ca. My name is Clément Gignac. I am a senator from Quebec and chair of the Standing Senate Committee on Banking, Commerce and the Economy. Before we begin the meeting, I would kindly ask my fellow committee members to introduce themselves.
[English]
Senator Varone: Senator Toni Varone, Ontario.
Senator Pupatello: Senator Sandra Pupatello, Ontario.
Senator Fridhandler: Senator Daryl Fridhandler, Alberta.
Senator Loffreda: Good morning and welcome. Senator Tony Loffreda from Montreal, Quebec.
[Translation]
Senator Ringuette: Pierrette Ringuette from New Brunswick.
[English]
Senator Yussuff: Senator Hassan Yussuff, Ontario.
Senator McBean: Marnie McBean, senator from Ontario.
Senator C. Deacon: Colin Deacon, Nova Scotia.
[Translation]
The Chair: Thank you, esteemed colleagues. It is our pleasure to welcome Peter Routledge, Superintendent, from the Office of the Superintendent of Financial Institutions.
Superintendent, your presence here today is particularly significant given the current geopolitical context and the changes in the regulatory environment south of our border. I would also like to draw your attention to the fact that our committee is conducting a special study on access to credit and capital markets for small and medium-sized enterprises in the context of rising productivity. That might come up as well. We’re very pleased that you have accepted our invitation. It has become an annual tradition to welcome you to the Banking Committee.
I’ll give you the floor, and then we’ll move on to a question period.
[English]
Peter Routledge, Superintendent, Office of the Superintendent of Financial Institutions: Thank you, chair. It is an annual tradition, and I welcome that we have established it in my time in this job. Thank you for the invitation to appear today.
Across the global financial system, risk is re-intensifying. Geopolitical conflict, trade tensions, technological disruption, cyber-threats fuelled by artificial intelligence, affordability pressures here at home and the prospect of slower global growth are contributors to this trend.
Canada’s financial system must not only remain resilient in this environment but also support growth, innovation and competitiveness. The Office of the Superintendent of Financial Institutions, or OSFI, is adapting its approach to help ensure Canadian financial institutions do both. We seek to avoid the stability of the graveyard in which a docile, risk-averse financial system impedes prosperous growth. OSFI is an actor in our financial ecosystem, and we have an obligation to ensure our own risk appetite does not fall into this trap.
[Translation]
A resilient financial system is not one that avoids lending or innovation. It is one that can continue supporting the economy through periods like the present in which innovative opportunity and uncertainty mix and thereby create volatility.
That is why OSFI is adapting its supervisory approach to place greater emphasis on early risk identification, clearer accountability, operational resilience and more focused, risk-based supervision.
[English]
We are also working to reduce unnecessary complexity and improve clarity in our regulatory framework. Smart oversight does not require unnecessary complexity. We are prioritizing the areas that matter most from a prudential perspective while removing duplication and improving the effectiveness of our regulatory guidance and supervisory tools.
In taking calibrated actions, OSFI recognizes the importance of innovation, competition and new entrants in Canada’s financial sector. We are taking a more proportionate and streamlined approach in areas where it can support growth and improve responsiveness while maintaining our financial system’s resilience.
We have a particular focus on small- and medium-sized businesses, which play an essential role in Canada’s economy, adding to the nation’s innovation and productivity. Access to financing for small- and medium-sized enterprises, or SMEs, is important, and I understand the committee’s interest in whether prudential regulation may affect that access. OSFI has a responsibility here, but so do Canada’s financial institutions, particularly banks. Those players occupy a privileged position in our economy, and with great privilege comes great responsibility.
To complement our work as well as the support provided to Canadian businesses by the federal government, banks have a tremendous opportunity to adjust their business models and risk appetites to support hard-working entrepreneurs who, if successful, create long-term prosperity that benefits Canada and Canada’s financial institutions.
Canada’s financial institutions remain well capitalized, well regulated, liquid, healthily profitable and resilient. OSFI’s role is to help preserve that resilience while supporting a financial system that serves Canadians, businesses and the broader economy during an era of extraordinary uncertainty and opportunity.
Thank you. I would be pleased to answer your questions.
The Chair: Thank you, Mr. Routledge. Colleagues, we have until about 12 p.m., so that will give us the opportunity for two question rounds. What I propose for the first round is to have six minutes each. We will start with our deputy chair, Senator Varone, for six minutes.
Senator Varone: Back in March, I wrote to you asking for greater clarification on the mortgage stress test and how it is that you are going to morph it into a loan-to-income-type test. And you were kind enough to respond to me in April. What you stated in your letter was that OSFI has determined that loan-to-income, or LTI, limits lessen the buildup of highly leveraged residential mortgage borrowers, thereby reducing systemic risk.
The question I have is: What are the specific criteria you consider when determining the loan-to-income limits of purchasers? How do these criteria today align with the economic conditions that we are currently facing?
Mr. Routledge: I’m going to answer that in two parts. First, I’ll just tell you broadly what LTI is and how it works at the banks, and then I’ll talk to you about how we set the limits.
The loan-to-income ratio is not a ratio for individual Canadians the way the mortgage stress test is. It just simply says to a bank that you can have X per cent of your mortgages underwritten to homebuyers who are borrowing and who have loan-to-income ratios higher than 450%, which is the threshold for highly leveraged homebuyers.
We say you can do 20% to 25% in any quarter but no more. What that does is create scarcity, and banks apportion that scarcity at lower risks so that you don’t see the runaway buildup in leverage that we saw during COVID. That’s why we do that.
How do we get to 22% for Bank X and 25% for Bank Y? We had the advantage, when we set it up, of going through a period of very rapid house price appreciation and buildup in household leverage in 2021 and 2022. That ratio was up as high as 38% or 39% of all mortgages underwritten, and we had a period of higher interest rates and higher mortgage rates. That ratio fell down to 15%. Therefore, we picked the midpoint, and what drove that midpoint were two factors: the banks’ own policies for measuring income — and they vary across institutions in complex ways — and their own business strategies.
We told them, “Here is a rate that’s reasonable given the experience. It isn’t binding in the moment, but if we ever see a liftoff in home prices and leverage, we’ll start to bind as intended.”
As an additional shock absorber or safety break, if you will, we told the banks if they wanted to change their strategy, they had to come to us and we’d talk about changing their limit to effect that strategy, assuming it’s safe. That’s largely what we’ve done for the last two years.
Senator Varone: How often do you communicate with your banking partners to have that dialogue about where the limit sits?
Mr. Routledge: Particularly for the larger banks, each has its own lead supervisor, and that dialogue won’t occur every quarter because banks don’t change their strategies that frequently, but it could occur every quarter if a bank wanted to have a conversation with their lead superior every quarter.
It would typically be talked about annually. We have a formal process with institutions where we meet annually with their boards and we provide them a letter discussing where we think their risks are. In the letter, we always state where the loan-to-income limit is and why. That can sometimes trigger a conversation with management or boards as well.
Senator Fridhandler: Can you advise us on what your relationship might be with the establishment of the financial crimes agency and whether someone from your office will actually be engaged in the management of that agency?
Mr. Routledge: Yes. First of all, the individual charged with leading that is a gentleman named Rob Stewart. I used to work with him at the Department of Finance. We met and have engaged on this. I have made sure that he has access to all members of my team who are in proximate areas to help, so generally we’re there and available to be supportive of the buildup.
After it’s built up, it’s important to note OSFI is the regulator of financial institutions. We’re not a law enforcement agency that would investigate misdeeds in financial crimes targeting either institutions or individuals. It’s important to have that clear separation of duties because, I think, laws around privacy necessitate that.
In the build, if we can be helpful in any way and share what we’ve learned about how financial crimes can manifest or crop up and threaten an institution, we’re more than happy to do that. But I do think good fences make good neighbours, and we need to have clear lines of delineation between law enforcement and regulators.
Senator Fridhandler: Switching over to SMEs, can you tell me what guardrails exist within your agency as a regulator, particularly when it comes to lending on intangible assets, which banks seem to have a hard time with?
Mr. Routledge: Our guardrails are more generic, so we won’t necessarily say intangible assets are bad and tangible assets are good. However, if you look at the way our capital regime works and the way we oblige banks to allocate capital across different assets or loans, it tends to advantage loans backed by property and, therefore, on a relative basis, it disadvantages loans to small- and medium-sized enterprises.
So for a large systemically important bank that allocates capital on their own internal models, you’ll see the capital required for a $100,000 equipment loan is five times the capital required for a $100,000 uninsured mortgage. That’s a fair criticism of our system in that it could unintentionally lead to misallocation of capital. It’s something we’ve been worried about for the last few years.
Last year, for smaller banks, we lightened the capital density for small- and medium-sized enterprise loans, and this year we’re working with the systemically important banks to do it. Just to give you a round number, in aggregate, what we’re considering would lower capital density from what is, right now, 55% of a loan to 41% of a loan. It would be significant, and we’ll do that and see what happens in the system and then keep refining.
Senator Fridhandler: This is a major problem area in which, I think, we’re very much behind the times. I understand that you’re in the risk management business, but I don’t know how we prod the system to get a little bit more aggressive. It’s not just on soft assets, but it’s also on regional differences and sector differences. One size doesn’t fit all. I don’t know if you want to comment on that.
Mr. Routledge: A lot of the empirical evidence that gets us to that current form of capital intensity has been built up over the past 20 years. It’s probably not a very good predictor for the next 20 years, and that is our presumption going in. We are experimenting in real time with reweighting capital allocation in our system.
To your point about not being fast enough, I take it. We are being careful and prudent within a broader effort to be more risk accepting. If we go for an all-in-one shot, we could have it go in the reverse, so we are being careful. It’s fair to criticize that and say that we could be bolder, but our gut feeling is that if we did too much too soon, we might create the opposite problem, which would be a wave of capital that gets misallocated to the small business sector and that would work out unfavourably, and who knows what the consequences would be.
I accept the criticism. We’re trying to move forward not only with purpose but also with an eye toward long-term resilience. It is a trade-off, and I’m trying to be straight about how we’re playing that trade-off.
The Chair: Thank you for your transparency, superintendent.
Senator C. Deacon: Thank you for being with us, superintendent. We always value these exchanges.
I want to speak to the government’s goal of unleashing $1 trillion of private capital in the economy over the next five years. Part of that will need to come from our very well-capitalized financial institutions, which have shown incredible resilience during this trade war and record profits, so they’re doing well.
Our banks lend at rates far below OECD averages in terms of loans to small- and medium-sized enterprises. We see a problem with both the banking and investment arms of our big banks in terms of their lending to the industries that we need to grow in our country, which are starved for capital, specifically the small- and medium-sized enterprises.
We had the Canadian Bankers Association here, and they really pointed to regulators as being the reason why there is this problem. They’re not the source. It’s not them, it’s not their culture and it’s not their priorities. It’s the regulators. So OSFI is part of the reason for this problem, according to the banks.
How accurate do you think that assessment is? How do you think OSFI could play a role in lessening the strain? We’ve certainly heard in response to Senator Fridhandler that there are things you’re working on. But I was intrigued by their perspective.
Mr. Routledge: The first response is to take it at face value. I said in my opening remarks that we have a responsibility to ask these questions and ask how our framework for capital, in particular, creates good outcomes and not-so-good outcomes.
One good outcome it produced is that we have a very resilient, profitable financial system. I would rather have that than not. But after 25 years in which the basic parameters of our capital regime have been in place, it’s fair to say and to ask the question: What more could we do? And we’re trying and we’ll continue to refine.
I’m glad to hear my regulated constituents talk about lending more to small- and medium-sized enterprises. While we’ll do what we can, they have a burden of responsibility themselves. I don’t think it would be a shock to anyone here that if you’re a homeowner and you have a lot of equity in your home, you can get a $500,000 or $1 million loan from your kitchen table while you have your morning coffee. The systems and the business models of these institutions are set up to enable that. But if you need a $500,000 to $1 million loan for an equipment investment on your farm, it’s not going to be a morning. It’s going to be weeks and a lot of processes and procedures. That’s a product of choices made by the senior management of banks and how they adjudicate credit. They can do more and do better. They have every right to pressure us. They have a right to pressure us and criticize us privately, and they have a right to do so in public forums like these.
Out of that hurly-burly, I think we will get a better system. Both sides can do more.
Senator C. Deacon: What we’re not seeing is ownership of that on the part of the banks at this point on a broad basis. What pressure could we bring to bear? What pressure could you bring to bear? What pressure could the government bring to bear? We’ve heard from lenders who are very happy to lend to small- and medium-sized enterprises based on their intangible assets and based on other measures, such as their sales growth and repeat customer business. The evidence of their business success exists even with those that have intangibles, and it provides a basis of comfort to the lender in terms of their security, but the banks are not moving down that road. How do we get that to happen?
Mr. Routledge: The best thing we can do, in my view, at OSFI is to enable more competitors to come in. Over the last year, we’ve been working to shorten the time frame and modernize the requirements for entering into our system as a new competitor. And you could be a fintech, you could be a foreign bank or you could be a credit union that has been provincially supervised but now you want to build a cross-provincial network. The time to get into our system is shorter than it was a year ago, and we want to shorten it even further. The best thing we can do is put competition in.
Overall, public officials can advocate and encourage banks to do more lending and to explain publicly with public disclosures how they’re helping the Canadian economy adapt.
There was a U.S. bank not too long ago that committed $1.5 trillion in a commitment to write new businesses up to $1.5 trillion to support the growth of the U.S. economy as it adapts to a world of AI and cyber risk and energy strains, et cetera. Well, wouldn’t it be great if we had some Canadian banks step up and make the same commitment to Canada?
Senator Loffreda: Thank you, Mr. Superintendent, for joining us this morning. My question would be on economic sovereignty but also access to capital. Canada continues to lose promising companies through foreign acquisitions at relatively early stages of growth. Does OSFI assess whether regulatory frameworks may be affecting the ability of Canadian financial institutions to support domestic firms through their scaling process or scaling phase, and what role can prudential regulation play in strengthening Canada’s economic resilience while preserving a competitive and stable financial system? I mean, you’ve mentioned greater competition, and you’ve mentioned a few issues, but maybe we can elaborate on that. That’s an important issue.
Mr. Routledge: Coming back to my earlier answer to Senator Fridhandler, we can continue to look at our capital rules because that will set up the debt side of the capital stack that innovators will need to invest in their businesses.
The other part of that capital stack is equity. I’m sure if financial institutions were here, they would be arguing for measures that would make equity investments in Canada more attractive. It’s not up to me, as superintendent, to really comment on it because I’m focused on the debt stack, not the equity stack. That’s what an honest observer would tell you.
Again, continuing to make it clear that entering our system — entering the regulated financial system — is easier might encourage companies that are more willing to finance not only debt but also equity positions in these new start-ups. That’s what we can do.
Senator Loffreda: Thank you for that. My next question is around artificial intelligence and operational resilience. You have identified AI as an emerging risk. What are the greatest risks you currently see in AI adoption within federally regulated financial institutions, like cybersecurity model risk, consumer protection, concentration risk or operational resilience? Do you anticipate issuing dedicated AI guidance? And if so, what principles would underpin that framework?
Mr. Routledge: I’ll give a general comment and then go into the specific. The general reality with the development of AI is the advancement of AI capabilities is growing rapidly, and its growth rate is accelerating. It’s non-linear. We saw that with the release of this model called Mythos by Anthropic, a step change in capability that poses a real cyber risk. We need to ensure that our capabilities for governing it and for setting up guardrails around its use keep up. That task is going to get harder over the next several years, not just for regulators but also for financial institutions.
In terms of how that plays out for direct risk on the financial system, the first is it’s increasing cyber risk. The capabilities of these models to identify vulnerabilities and then develop exploits and to do it autonomously and quickly is quite staggering. Mythos isn’t the last model that brings forward that threat. Institutions are going to have to be on guard when developing their guardrails for that, as the technology’s development is presenting more risks. That means trying to get early access to frontier models when you can, but not settling for waiting when you can. For example, with Mythos, even though other models such as Opus or ChatGPT aren’t quite as capable as Mythos, you can get to 60% to 80% of the capability through using those systems, and we’ve been counselling financial institutions to start using that. Hopefully, with the news this week, more institutions will have access to Mythos. There will be a capability enhancement so that institutions can be aware of and constantly adapt their defences against cyber risks fuelled by AI.
Then you come indoors into the institution. Financial institutions are giant intelligence systems, with groups of people, including chief risk officers, loan officers, CEOs and CFOs. They make decisions every day about which risks to take and which risks to lay off.
Now you have this form of artificial intelligence entering in that will speed up that process and maybe even make them better risk decision makers. The trick is to make sure you incorporate that tool within your decision making or risk system to guard against traditional risks when you’re running a financial institution, which include making bad assumptions about the future, betting everything all on one particular point of view, jumping into a trade that everyone else has jumped into and jumping into it too late.
Where the guardrails for financial institutions will have to go up is to make sure those traditional and chronic dysfunctions in intelligence systems don’t get sped up and metastasize when it’s artificial and you can’t see as much.
We’re doing work in setting up some guidance for that. We’re also trying to adopt a “first, do no harm.” I think banks will figure out the protections faster than regulators will. We have to be mindful of that. At the same time, you don’t want to be caught unaware, so we are doing a lot of work with third-party organizations and internally.
Senator Yussuff: Mr. Routledge, thank you for being here again. I will start with a compliment. You’re probably one of the institutions in this country that doesn’t get the accolades you deserve. The system has survived, and it protects us as a country and as individual investors because of the tremendous amount of effort that’s put in, and that goes to you but also to the tremendous amount of good staff working there trying to make the system work.
Given what’s happening with AI and the challenges we’re seeing, I have a number of questions. Let me start with my pet project: credit unions. I remember the last time you were here, I had a question for you. You told me you were moving as quickly as you could. Where are we at with regulations to get credit unions to be more accessible at the federal jurisdiction?
Mr. Routledge: There is good news on that front. Thank you for the compliment, which I accept on behalf of my colleagues at OSFI. We do have a lot of dedicated public servants who quietly work sometimes extraordinary hours to keep the system as resilient as possible. I’m here on their shoulders, just to be clear.
On credit unions, we’ve had a good start to the year. We’ve had a large credit union out in British Columbia called Tru Cooperative Bank. They’ve joined the federal system. We had another federally regulated credit union, Coast Capital, acquire two provincial credit unions in B.C., which required those two provincial credit unions to join the federal system before they were acquired. We’ve been moving that file along quickly and we expect more to come.
My view on credit unions is as follows: Within Quebec, you have a large, well-established, well-capitalized credit union and credit union system that serves the needs of Quebecers who want a mutual model for their banking. That credit union generates enough capital to reinvest in its operations, grow its balance sheet and pay dividends to its members.
Outside Quebec, the system is more fragmented. That fragmentation and the risks that go along with it intensify in this environment with AI. And 5 million Canadians outside of Quebec want a mutual model for banking. In order to preserve that model, they need larger players who can operate in this more complex environment.
One mechanism for further consolidation is the path to federal continuance. We’ve tried to smooth that out and shorten it. We’ve had a good first half of the year, but there’s more to go. We continue to be welcoming to credit unions whose members choose to direct their management to continue into the federal system.
Senator Yussuff: Thank you for the good work. Recently, an International Monetary Fund country report came out. Obviously, we’re doing good work around money laundering. We need to step up. One of the challenges we face as a country in money laundering is the underground economy. As you know, it feeds the system. That’s where the beast is at the end of the day.
To a large extent, I think it speaks to the fact that even though this problem exists in the country, finance ministers and others in general haven’t come up with clear guidelines as to how we tackle this. If you talk to legitimate businesses undermined by the underground economy, in reality, this is a challenge we have to get to. It also means that for all of us who are taxpayers and pay our fair share, we are getting hosed by the people who are constantly trying to undermine us.
Do you have any thoughts on how these complement each other in dealing with this issue?
Mr. Routledge: In our system, money laundering constitutes a threat to the institutions we supervise. We’ve learned, in particular, over the last three or four years that this threat can really metastasize to challenge long-term viability.
There are plenty of crimes that money laundering attaches itself to, but in our system, more often than not, it tends to be connected to the illegal drug trade. The government changed our mandate. We spent a lot of resources and effort over the last three or four years to figure out how we, as supervisors, can help banks improve their defences.
It’s a difficult thing to figure out. The way we monitor money laundering is through individual transactions, and that involves information about private individuals. We don’t, by law, have a right to that information, nor do we seek it. We’re learning over time that we can detect patterns of behaviour, and we can provide alerts to financial institutions, and financial institutions can take measures to protect themselves. It’s by far from a complete effort. Success will not arrive all in one go. Success will arrive over a number of years with supervisory dialogue, such as “Here’s where we see weaknesses. Here’s where the anti-money laundering authority, FINTRAC, sees some weaknesses. Here’s what we expect you to do over the next year to harden your defences.” That’s a process.
I do think what we’ve done in Canada in terms of the change to our mandate and OSFI’s focus on money laundering as a discrete risk is groundbreaking. I think, in three to five years, our peers from the regulatory world will come and try to understand what we did and learn from it. I think we’re quite advanced on this part of our environment.
Senator Ringuette: Earlier, you said two very important things, as far as I’m concerned. You said there’s a bank in the U.S. that announced it would use $1 trillion for capital. Can you specify? Is it capital for SMEs or for major projects? I’m asking this question because there is a will or a desire right now to invest in major projects. Will that take away the possibility of capital for SMEs from the banking institution?
Maybe I should have started with a quick question: Is that $1 trillion from that U.S. bank for major projects or SMEs?
Mr. Routledge: It’s $1.5 trillion. I would call it broad funding, and that could take the form of loans to SMEs or financing acquisitions or other forms of investment in specific sectors. The loans or the investments could be to large institutions. They could be to smaller institutions. The way it was framed by the institution was a broad effort to help this institution’s American clients adapt and invest in the adaptation of the American economy to the world as it is.
It could be anything. It’s not limited just to small- and medium-sized enterprises or large corporations. It was a firm commitment. The nice thing is when you make firm commitments, people can hold you to them.
Senator Ringuette: You said you would welcome Canadian banks making such a commitment. Is your regulation or stress test for business loans hampering such a commitment?
Mr. Routledge: I would welcome if Canadian financial institutions made a concerted effort to help the economy adapt to a new environment within the bounds of sound prudential management.
Our system overall, demonstrably, has quite strong levels of capital. As of the quarter that just ended, our systemically important banks have amounted capital to $60 billion in excess of our regulatory minimum to be well capitalized. You can leverage that $60 billion up by many multiples.
The capacity is there. The commitment would certainly be welcome. What’s more important than the superintendent welcoming the commitment? I think Canadian households and businesses would welcome the commitment.
Hearkening back to some of my earlier answers, we also have a burden of responsibility here. We should be asking that question. We are experimenting now to look at how we can adjust our own capital framework to make sure that we’re not standing in the way of it. It will be through trial and error. In our judgment, it has to be through trial and error because if we make a mistake, it will tend to get amplified throughout the system pretty quickly, and we won’t make a mistake.
Senator Ringuette: As a follow-up to what you just said, how does OSFI’s regulation in regard to this minimum ratio of capital compare to other countries? What we’ve seen is that banking systems in other countries are much more open to loans quantity-wise than what we are experiencing in Canada.
Mr. Routledge: Overall, we’re probably at the median. Some systems have begun to take their levels that were higher than ours and they’re starting to drop down to our neighbourhood or even a little lower. Over the next couple of years, we’ll be having to ask ourselves, “What’s our risk appetite? Do we want to play catch-up?” The risk there is we go too far and we follow everyone else down the drain. The other side of the risk is that we are risk averse and blind, and we sustain policies that damage the ability of the Canadian economy to compete. It’s a trade-off.
I’m happy with where we are right now. I’m happy that our institutions, particularly our large banks, have fortress capital and are highly profitable. That’s not a bad outcome, but we accept the burden of constantly questioning our assumptions about what the next 10 or 20 years hold and adjusting our policies to make them optimal, so stay tuned. We’ll keep doing our best.
Senator Ringuette: We’ll definitely stay tuned.
Senator McBean: In line with Senator Ringuette, I find it kind of ironic the amount of investment in trying to keep up with and include AI as a threat. Yet we heard from so many people when they came in for our study on access to credit and capital markets for SMEs that the banks were the last place to go to look for support and growth, particularly with respect to IP products and the development of AI issues and, as Senator Deacon said, the intangibles.
In your opening remarks, I thought, “Yes, here we go.” I think you mentioned the growth graveyard and that being docile impedes growth. You said that your concern was doing too much too soon, and there was a requirement for sound prudential management.
I’m wondering how you circle this in doing something, where there’s not a concern of doing too much too soon and you end up being frozen and doing nothing. How do you be brave?
Mr. Routledge: You just encapsulated OSFI’s job right now. We have this hard-won resilience in our financial system that’s an asset for the economy, but by virtue of what I said and what you just said in your question, our risk is that we leave that resilience on a credenza, and we admire it, and we don’t use it.
How do you be brave? You make big, bold statements about your intent. You state it out loud, knowing the fact that you’re trying to adjust your risk appetite for a different environment. In our case, that means accepting more risk in a responsible way, but accepting more risk to get better outcomes, knowing that better outcomes aren’t guaranteed. That is the mindset shift.
For a regulator, it’s not easy. We came out of a harrowing financial crisis from 2007-08. Many of us at OSFI lived through that and watched institutions come perilously close to the cliff. Some outside of Canada went over. You’re trying to recognize that experience while, at the same time, recognizing the next 20 years won’t be like the last 20 years. It’s worth taking risks.
As I was saying about some of the work we’re doing on SME readjusting capital intensity, let’s try something. Going from a capital density from 55% to 41% is a pretty good clip. We’ll have a year or two, and we’ll see what we’ve learned. Maybe we’ll go further. We don’t know. In our world, we’re turning a battleship, not a bicycle. You be brave by taking careful risks, but you take risks. You learn from them and constantly pressure yourself and your organization to ask what more and what better you can do.
Senator McBean: I find big, bold statements are easy to make. Big, bold actions are harder to make.
Regarding the policy that, as you said, protects the privilege of the strength and position of the bank, do you think there should be any policies that support sharing some of that growth with the growth of SMEs and other developments within the country?
Mr. Routledge: If you look at what’s ahead of us for the next 20 years, we will need pretty significant investments in technology, new businesses, new forms of energy, old forms of energy and infrastructure. The growth part of the economy, I think, will be in that, whereas 25 years ago, you would probably have said the household was underbanked and we needed to do more. Regarding the smart banks and the banks that get out in front and are aggressive and more risk seeking, they may take their lumps early, but they may find themselves 10 or 15 years from today in a much better position than their competitors because they took these risks and bet on developing the Canadian economy.
We have to walk a fine line here as a regulator. You want banks to take more risks, but you don’t want them to take risks that pose threats to their viability. A lot of our messaging over the last 16 to 18 months has been around encouraging our regulated constituents to think about how their business models adapt more quickly to the opportunities ahead of us instead of the opportunities behind us.
Senator Pupatello: I’d like to ask you about credit cards and small businesses using credit cards for debt. That number has been increasing, although the data doesn’t distinguish well between individual credit card users and those individuals who own small businesses using credit cards for these interim finance measures. You do collect data from the banks on this, but you don’t publish a lot of it. Tell me what you think is happening with the use of credit cards among SMEs for this debt financing.
Mr. Routledge: If you take over the last year and you look objectively at the performance of the economy in response to some of the trade tensions, it’s slowed down. Empirically, that’s true. That will tend to affect small- and medium-sized enterprises earlier, and higher credit usage would tend to support the notion that it’s an indicator of potential strain. It doesn’t mean they’re fully strained. It’s an indicator of potential strain. That’s high-priced debt, where access is relatively easy, but to carry it is quite expensive.
It is a sign of stress, although it has not metastasized into this rapidly accelerating risk yet, which I suppose is good news in one sense, but it isn’t a reason to take our guard down.
We do get information and it is non-public on a variety of risks. Credit card risk would certainly be part of that. I don’t know off the top of my head if we are collecting that specifically. I can come back to you. We could. What we couldn’t do is publish it by institution.
Senator Pupatello: There is data available over who pays in full each month and who doesn’t and, therefore, how much interest is being paid to banks across those months at 60 days, 90 days and what’s happened over time. Anonymizing it won’t make it commercially sensitive when you receive it. That’s something you could publish.
Mr. Routledge: I’d have to talk to our Department of Justice colleagues to make sure we’ve stayed consistent with the confidentiality provisions in the Office of the Superintendent of Financial Institutions Act. It’s possible we can anonymize by institution. In other words, we can give you system-level data, but not institution by institution-level data.
Senator Pupatello: There is a settlement agreement in place for five years, starting in 2022, around a lawsuit that the banks were conspiring between Visa and Mastercard to set higher interchange fees, and retailers were stuck with these massive charges. With this agreement, the surcharge ability for them has stayed in place for five years. In Quebec, they have the Consumer Protection Act, so the rules didn’t apply there. That was in 2022, so five years is next year, and that goes away. Tell me what happens after that. Are you familiar with that?
Mr. Routledge: I’m quite familiar with interchange. It is a profitable part of financial institutions’ business models in Canada.
Generally speaking, more flexibility and more transparency around the pricing of interchange for merchants will tend to bring more awareness and more price scrutiny on interchange. To the extent that the temporary agreement that provides transparency stops and there’s less transparency, it will certainly give players a little more leeway to adjust their prices.
Senator Pupatello: They are able to charge because of that agreement. Are their fees larger than the 2.4% in many instances? Or would that have been settled on because it at least covered the cost of the fees they were getting?
Mr. Routledge: You’re referring to the 2.4% surcharge that a merchant could charge a client?
Senator Pupatello: To recoup what they are being charged. Are you familiar if there is a differential there, or is the merchant still paying for that service?
Mr. Routledge: I know what you’re asking. I’m trying to stay within the bounds of our confidentiality act.
It will depend on the merchant.
Senator Pupatello: [Technical difficulties] you are would be. Are they then not able to charge the 2.4% next year because the five years is —
Mr. Routledge: I’m not sure about that. I’d have to come back to you on that. I’m not sure exactly the specifics of that. I would say a merchant that is charging 2.4% is probably just trying to cover their costs.
Senator Pupatello: I could probably get that data from you regarding what the transaction fees from the bank to the merchant are. You couldn’t tell me that?
Mr. Routledge: I couldn’t tell you that.
Senator Pupatello: You couldn’t tell me in an anonymized fashion?
Mr. Routledge: Probably not. I could look into it. I’m not trying to not tell you something that I’m legally able to tell you, but based on my understanding of how interchange works, I probably couldn’t tell you that.
The Chair: Before going to the second round, maybe I will ask a question. Last March, the CEO of the National Bank of Canada, Mr. Ferreira, mentioned that Canada should ease capital constraints to boost lending to SMEs. Canada should make more targeted reductions to risk weightings for loans to SMEs.
We have a situation in that Canada is a very diversified economy. I think companies make a lot of profits. We disagree with the expression “recession” because we don’t see a consumer recession. What is your reaction to this? In fact, it’s really about risk weightings as a treatment for SMEs. I think they are [Technical difficulties], but in the current situation, is it something that you would consider seriously? The OECD study said that the cost of capital for SMEs in Canada is higher than in other countries, and even the Competition Bureau has now launched a special study to be released this fall. Any thoughts or reaction to that?
Mr. Routledge: My first reaction is, I think he said that in March or April?
The Chair: There was an interview in March, yes.
Mr. Routledge: In the fall, we announced our first targeted efforts in this regard for small- and medium-sized enterprises, in part because we were trying to be sensitive to their competitive disadvantages, in part because they spend a lot of time trying to help out small businesses. We made targeted reductions to small- and medium-sized enterprise capital intensity or capital rules. Now we’ve moved on to the larger banks. The National Bank of Canada is one of those. We’re working with them on similar equivalent reductions in risk-weighted asset densities. I agree with him, and we’re working hard with his team and the risk teams at the other large banks to effect that.
The Chair: What is the current ratio, and how does it compare to the U.S. or Europe? Could you elaborate a bit?
Mr. Routledge: I have to come back to you on Europe and the U.S.
The Chair: It’s a little bit technical.
Mr. Routledge: Broadly, for a $100 loan to an SME, we would risk-weight that loan at around $55. We’re considering changing our framing to lower that to around $40. It gives you a sense. It’s 20%.
The Chair: On the fiscal side, the U.S. is more aggressive, and when a company invests and conducts the first year of this investment, we have not matched that in this sector in Canada. For SME access to capital, it’s music to my ears that you’re working on that. Thank you for that. I think we’ll include that as an observation in our report.
Senator Varone: One of the odd things about serving on this committee, Mr. Routledge, is the more I learn, the less I understand. When studying access to capital by small- and medium-sized enterprises, we learned a lot, but I think I understand less now in terms of how all of that access to capital actually works.
When I was doing my research in 2025, there was a $53-billion surplus by the big six banks. They lent some $297 billion to small- and medium-sized enterprises — at least that’s what is stated in their overarching narrative — of which they said $186 billion was taken up, leaving $111 billion that was unused in terms of what they’d already approved.
They also claim that there was a 91% approval rate for those loans, but then when all the witnesses came before us, it didn’t match that narrative. Then I go back to Senator Deacon’s comments about the difference between tangible assets versus intangible assets. Is that where the problem is? Is it because they don’t know how to lend — I’m talking about the big six banks — on things that are not based on terra firma?
Mr. Routledge: I wouldn’t frame it that way. Canadian banks know how to lend to businesses. The question is: What’s their willingness? I take the 91% approval rate at face value, but does that count for the businesses that walk into their branches and say, “I need a $100,000 or $500,000 loan,” and the branch manager says, “You’ll never get it,” and there is no application?
Senator Varone: [Technical difficulties].
Mr. Routledge: I don’t dispute that. I’m just trying to frame some of your anecdotal experience against what the data is telling you, and I think that might be part of the explanation.
We’ve had a cycle in the industry where we had fast-growing household formation in Canada and where we had robust housing markets across the country, and we were lending the extra dollar for the extra mortgage. It was a very profitable endeavour. Banks, being profit-maximizing organizations, built models to do that. As I mentioned earlier, we have some responsibility for that, as do the banks.
The models have to shift to a different economic model, where more of our economy is dedicated toward infrastructure and energy, and that energy could be renewables or non-renewables — I don’t want to take a position there — and other forms of investment. We’re going to have to adjust our regulatory approach to that reality, and financial institutions are going to have to adjust their business models to that reality. What you’re talking about is staleness in business models at the end of the day.
I hope institutions are starting to see that. I can tell you that my colleagues and I at OSFI are certainly aware of that, and we’re trying to adapt in the way we’ve spoken about today.
Senator Fridhandler: Thank you for your very transparent and helpful commentary here. I encourage you to help the big banks that can much more afford the risk than the small banks to reduce their capital intensity on SMEs and intangible lending.
Let’s shift for a second. You are also responsible for insurance companies. I’m not sure, but you can probably tell me the extent of their capital in their float that they can also deploy to improve productivity in the Canadian marketplace. Everyone knows Berkshire Hathaway and the investments that they make.
What can you comment on about the insurance industry and SME engagement?
Mr. Routledge: A little over a year ago, when we were initially faced with the policy change toward trade with the U.S. government, we went to all industries and asked for ideas, and the insurers came and said, “Why don’t you lower capital intensity on infrastructure investments for us?” We did that, and they were quite happy with it. Now they’ve come back to us, and they have more ideas in a similar vein.
Their liabilities are longer, so their investment timelines are longer. Their models are quite amenable to more investment. They’re also more apt to do both equity and debt investments, again, just given their business models.
We’re into another cycle of them coming to us with ideas and us trying to figure out what a worthwhile risk to take is. They’re quite excited about what we did last year, and I’m confident we’ll get some more good ideas from them and implement them in the year ahead.
Senator Fridhandler: On new bank licensing, are there people lined up to start new chartered banks? Can you tell us a bit about the pipeline and your encouragement to see more banking in this country?
Mr. Routledge: There are two primary sources of inquiries coming in to us so far. One is from provincial credit unions. They’re quite geared up, and I would say they are further along. They’re interested in expanding their franchises geographically to get a better cost structure and better diversification of revenues. When they decide, the pathway is going to be shorter and smoother with OSFI.
The other is fintechs. They’re quite aggressive, and they see immense opportunity here in Canada because the system is so profitable. If you’re an innovator, there is an old saying: “Your margin is my opportunity.” They’re approaching our market that way. They’re worried — understandably, being innovators — about entering into a regulated system and what that means. We’re trying to get them comfortable, and I would put them a step or two behind the credit unions.
Senator Fridhandler: Do you believe that the asymmetry in capital intensity regulation in Canada versus the United States is a factor that is impacting the exodus of Canadian businesses to the U.S.?
Mr. Routledge: At present, it’s probably not a major factor and not something that’s driving that. It is a risk that we have to consider. As we consider our own work on bank regulation and financial institution regulation, that is a factor we consider. We do look at what our peers are doing. We don’t seek to disadvantage Canadian banks or Canadian businesses in this environment. As I said, that may mean the financial institution regulator accepting a little more risk. We have the resilience and the capacity to do that.
Senator C. Deacon: Thanks again, superintendent, for being with us.
In terms of your Integrity and Security Guideline, I just want to double-check. In Budget 2025, the Financial Consumer Agency of Canada, or FCAC, is required to get individual bank reporting. Are those data going to be shared with OSFI?
Mr. Routledge: If the reporting is on institutions, not individuals, and it was material to the prudential or viability of institutions, yes, we would get access to it. Just to be clear, if it’s about individuals, we would not.
Senator C. Deacon: No. Absolutely. That, to me, feeds into your Integrity and Security Guideline in a meaningful way, so it’s good to have that confirmation.
You had a study a number of years ago — I can’t remember when it was. I think it was in 2022 with the Bank of Canada on climate-related threats. You identified with the bank at that time that, in addressing those threats, early movers will have a much more stable and predictable economy than those who delay action.
Has your modelling changed relative to where the world is at right now in a post-Donald Trump era where the gasket has come off on that issue?
Mr. Routledge: Yes, we are advancing that work diligently and quietly, to be honest.
After we established our Guideline B-15: Climate Risk Management, which sets broad parameters for how we expect institutions to manage it, we’re doing two things. The most important piece of work we’re doing is gathering data on climate risk, both on physical risk and transition risk. That’s going to be a three-year cycle because it’s new data, which means in the first year the quality is low, the next year it is moderate and the year after that it will get better and better.
As we do that, boards will be able to price that risk effectively, make more informed decisions and make their institutions a little more resilient in the face of climate change. It’s an ongoing thing that gets better every year.
The other part is in ensuring they have sound policies in place for managing the identification of climate risks, and we supervise that on a bilateral level. So institutions are getting reviewed bilaterally by OSFI on how they’re doing on core governance of that risk.
Senator C. Deacon: Lastly, with the Global Risk Institute, you launched an AI-related initiative that was updated in March. You pointed to the growing risks of overreliance on a small number of cloud and AI providers in the world. Is your supervisory framework sufficient to manage that concentration of risks, and are there new tools or powers that you need?
Mr. Routledge: That would fall under the Third-Party Risk Management Guideline, which is relatively new. So it’s probably sufficient today, but I wouldn’t assume that in five years it will be sufficient. We may have to do some work based on what we’re learning about the AI space.
Senator C. Deacon: Thanks very much, superintendent.
Senator Yussuff: I want to talk about cybersecurity. Obviously, we’ve been stuck in updating the legislation in regard to recognizing that the system is moving much faster. With some likelihood and with our fingers crossed, we might get the bill through the Senate today and get Royal Assent by the end of the day. But still, the regulatory framework for that is going to be quite daunting and challenging in terms of getting it done. Maybe it’s 12 months or 24 months; we don’t know. The minister is aware.
How helpful would that bill be in regard to working in your sphere at the federal level while also helping other institutions at the provincial level protect themselves in the context of criminals and also state actors that are very much engaged in this field of trying to defraud while equally trying to undermine the system?
Mr. Routledge: Any legal framework that would help the system bolster its defences would be a net positive for us.
The work we’re doing is in the work of regulatory guidelines, and we can keep moving that forward. I’m not saying the legislation, when it comes into force, won’t be helpful. I’m just saying we can drive our work forward and improve safety in the system regardless of how long that part takes.
To the extent the legislation expands capability to parts of the economy where we don’t have direct oversight would be a net positive because once poison gets into the system, it flows wherever it wants. And a problem that doesn’t occur in our system could easily flow into the federal financial system that we regulate and could harm us.
Senator Yussuff: For my last point, I really want to compliment you but equally challenge you. When you show up to this committee — as it’s televised and for those who care — what we don’t have is an incredible amount of literacy on what you do to protect us in this country.
Have you given any thought as to how you can broaden the scope in terms of where you speak to get that information? Because I think the more that Canadians know of the system and how it’s protected and the governance that’s involved can truly make us far less cynical and more adaptive to the fact that the system is resilient and it is moving, but maybe not as fast as the risk in driving. You can go over the speed limit, but the cop might be over the hill. I’ll put it that way, so maybe you can respond.
Mr. Routledge: It’s something that we’ve been working on throughout the time that I’ve been in this role. The decisions we make do have an effect on Canadians every day, and when that happens, public servants should be available and should explain themselves.
An institution I admire and look up to for its communications posture is the Bank of Canada. In terms of explaining their mandate and explaining their decisions, they’re an institution I admire and look up to and try to emulate.
We are much newer than the Bank of Canada and traditionally have operated behind the scenes. We are moving out tentatively, and we’ve been experimenting with new forms of media, particularly podcasts, to get our message out. We haven’t spoken to mass audiences by intent, as we want to manage our activity in the public space carefully. We are unelected regulators with a very specific mandate, and we don’t want to presuppose or assume for ourselves a greater role than is responsible. So we’re probably a little risk averse and could do better is probably my final part of that answer.
Senator Loffreda: Mr. Routledge, you’re talking about your role, and you received an expanded mandate regarding integrity and security. What are the most significant vulnerabilities that OSFI has identified within Canada’s financial system, given that mandate? Are you satisfied that our financial institutions are adequately protected against foreign interference and cyber-threats? We talk a lot about money laundering risks, and often it’s in the media as to how our performance should be a lot better on that front.
Mr. Routledge: The two big ones in integrity and security — but not the only two — are cyber and money laundering. Those are the real threat factors where events could undermine confidence in an institution, and that is where our supervisory focus is on.
In fact, if you were to look at the supervisory letters we send to just under 400 institutions every year, the first thing you would notice is how worried supervisors are about those risks. That’s a good thing, and the new mandate building transparent regulatory infrastructure around it means that we’re much more focused on it, which means institutions are more focused on it. They’re not always happy with our judgments, but in the long run, they do see the merit of — as I say to boards, you need to build up defences against bad actors who will do harm to your organization. That’s where the biggest threat to integrity and security is.
As I said earlier, our regulatory peers from around the world will be coming in two to three years and trying to learn from what OSFI went through. We are the only regulatory institution in financial systems that I’m aware of with a discrete integrity and security mandate, and we’re making progress. But you have to set the progress against the threat, and the thing more likely than not to keep me up at night is those threats are metastasizing at a faster level sometimes than our defences. We need to constantly be thinking about redoubling our efforts.
Senator Loffreda: Thank you.
Senator McBean: You mentioned a few times here today that the banks are highly profitable, which is good. It’s better stable and safe. You’ve even said that the banks are profit-maximizing organizations. Again, I’ll go back. These profits and the protections that allow it are a result of public policy and banking policy, but these profits are coming off the backs of Canadians who are struggling to pay bills and build businesses.
So I’m wondering if there is a level of profit that’s too much, but I want our banks to stay stable and safe and reliable in challenging times.
Again, what are your thoughts on a policy that would direct Canadian banks to invest profits specifically in Canadian growth broadly, including small, medium and, of course, the major projects?
Mr. Routledge: In my experience in financial systems globally over the course of my career, the best way to get a banking system to adapt itself to the needs of its customers and the economies it serves is through competition and through indirect measures.
What you’ve mentioned in your question is a more direct measure. Direct measures, however well intentioned, can often produce unintended consequences. I would prefer to get to that question through what we’re doing around adjusting our capital regime for better decisions, making it easier to enter and compete against other Canadian banks. As a regulator who’s responsible for broad systemic resilience, that’s the way.
I certainly accept the problem you stated. The mechanisms I would prefer to use would be the more indirect that I just mentioned.
Senator McBean: Could you give some examples of what would work as indirect mechanisms?
Mr. Routledge: More new entrants into the Canadian banking system to provide more competitive challenge to institutions.
Senator McBean: From other countries’ banks?
Mr. Routledge: It could be fintechs, credit unions and banks from outside Canada. We’re trying to enable that through our work and our entry system.
Then the other part of it would be to continue to refine work on how to adapt our capital requirements to a new environment. Banks do make competitive decisions based on relative capital intensity, and we have to be mindful of that. They will start to compete on a different basis if we change the capital rules.
Senator McBean: Ideally, I wouldn’t want it regulated easier. I wish there were more choices to keep the money building the Canadian system.
Senator Ringuette: I have to say that I truly appreciate the dialogue that is happening here and that you’re being very forthright. I appreciate that.
I guess it leads to my question: How much have we created a problem in regard to loan competition and loan availability by allowing our financial institutions to integrate non-banking services into their business plans? It has removed, somewhat, their focus on true banking services in order to move ahead in their business growth.
Mr. Routledge: Regarding expansion into non-banking activities, such as asset management and insurance — although they don’t sell out of branches, they do have insurance subsidiaries — I would be disingenuous if I didn’t say that adds earnings diversity to institutions. That is generally better for the viability of institutions.
If something goes wrong in your banking business, if you’re still earning plenty in your asset management business, that adds to stability.
The question then is: Do those non-banking services either distract management attention or capital from core banking? I would say with some confidence that the banks do a fairly good job of structuring their organizations so that you don’t get that.
In other words, the people who run commercial banks, as part of the broader banking corporations, do a pretty good job and are laser-focused on their model. They probably have their own frustrations about capital risk weightings, et cetera. They probably are very well intentioned about wanting to get more capital into their communities. I don’t say that.
In terms of capital, here is some good news: Non-banking businesses are much less capital-intensive than banking, so it’s not really a core risk of capital not getting into the right places.
Senator Pupatello: To go back to those questions I was asking earlier, I put it in AI. AI told me about the stress test I recall: I recall Jim Flaherty being the finance minister in 2008 when they enacted this. They put it in a budget bill that then regulated you to regulate the banks to force them to add that 2% for that stress test. That was the flow of activity. There is a way that you actually regulate the level of charges, if you will. Is that correct?
Mr. Routledge: OSFI does that.
Senator Pupatello: That’s OSFI.
Mr. Routledge: Okay.
Senator Pupatello: Yes. So you could regulate the level of charges that a bank would be able to charge a merchant, where their customers then use credit cards for purchase. That’s within the realm of what you could do.
Mr. Routledge: Can I come back to you on that? That is not something I certainly walked into this conversation aware of. I confess it would be a little surprising. Let us go back, take a look and make sure whatever we — yes.
Senator Pupatello: That’s great. Could you tell me what the rationale would be to not publish information that’s anonymized and not linked to any particular banking institution, which would collectively give us a picture of the level of debt past 30, 60 or 90 days or more that individuals/businesses — because we haven’t been able to distinguish — might be carrying? There are materials that you receive from them. So what would the rationale be?
Mr. Routledge: The data would be data on small businesses on their credit card debt outstanding. Presumably, if it’s rising, it would be an early indicator of stress.
We would need to confirm two things: One, we have to make sure it didn’t upset any confidentiality obligations we have. But, again, if we anonymize across institutions, it’s a fair point. It wouldn’t do that.
Senator Pupatello: When banks do their regularized reporting, financial posting, et cetera — all of that — there will be information in there that will say this number of cards are delinquent, for example, but they won’t say how. They won’t say if that is past 90 days. They’re very high level in terms of any level of indicator when they’re doing their reporting, with nothing likely that’s obligated.
Mr. Routledge: Let me take that back. It will vary by institution. But some institutions will give you credit card delinquency rates at that level. It’s not easy to find. You have to be a bit of a bank nerd to find it. There is some of that information available.
Senator Pupatello: Could you explain the process to me? I have already watched in my own history of your ability to regulate a charge, which is, in that instance, the stress test. We know why that was done when it was done. It was obviously important to get people locked into a mortgage they could afford —
Mr. Routledge: The mortgage stress test, yes.
Senator Pupatello: — given what was happening, right? So I understood the stress test.
What would it take for you to be able to regulate those charges that a bank would be able to charge small businesses for a whole variety of services? Is that something you need to be legislated in order to enact, or do you outline guidelines that would indicate this is an appropriate guideline that banks should use?
Mr. Routledge: The stress test is a test which is not legal and binding. We have it in a particular regulatory guideline. It just communicates our expectations that banks underwriting residential homeowners will apply this income test. It has become an industry standard that all players accept.
If we notice an institution not imposing this test, we would intervene as supervisors to nudge them toward doing so, but we wouldn’t be using any legal powers. Our regulatory guidelines do not carry the force of law.
That would be in service of a prudential objective, which is well within our mandate.
Your point is: Would we apply a rule or a guideline on credit card interchange charges or other fees? That would not strictly be prudential, and we would probably have a hard time sustaining that.
Senator Pupatello: This is the last percentage: 95% of Canadians use credit cards, but the breakdown is difficult to get between businesses and individuals and the use of all the reward programs. Clearly, it’s in the best interest of banks to get you on a credit card, and they use all of these various incentives to do so, such as Air Miles points, et cetera. More and more people are using them.
This area and this line of return for the bank are growing. I just wonder if that’s something you would be looking at. Maybe you could consider that and look at all the elements out there for banks in terms of what they’re getting and what is happening to small businesses using that as an avenue for credit.
Mr. Routledge: Anything we did in that space, we would have to confine ourselves to prudential risk. For the mortgage stress test, there’s a clear link to prudential risk. If banks don’t underwrite their customers with a view toward their ability to service their debts at higher interest rates, then that puts prudential risk. That’s the rational basis for our involvement in that space. We would have to find a similar avenue to do something on credit cards.
For other avenues, you either would have to write legislation targeting another organization or you’d have to change the mandate for OSFI, which I’m not advocating. I’m just trying to answer your question. OSFI is confined to its mandate, which is confined pretty tightly to the prudential space.
Senator Pupatello: Thank you.
The Chair: In fact, it’s better that I do not ask you what will be your decision on June 19, since you have called the analyst for the brief on the domestic stability buffer, but we will watch what it will be because the domestic stability buffer has been there since you introduced it during the pandemic; that is something we will watch.
We want to thank you. I want to echo the comments from Senator Ringuette about how much we appreciate this session with you. There’s been a lot of transparency, which increases dialogue.
It was music to our ears, and probably for Senator Deacon as well, about competition to expand the credit union possibility in Canada.
Senator Loffreda has referred many times that we have much more competition in Quebec with the presence of Desjardins than we have seen in other provinces, including fintechs and possibly foreign banks, which is part of the solution. We want to thank you.
Thank you, Mr. Routledge, for your testimony.
(The committee continued in camera.)