Superintendent Peter Routledge participates in a fireside chat with Mortgage Professionals Canada

Check against delivery

Moderator:

Thank you so much for joining us today. We have been looking forward to this discussion. Before we dig into the policy matter, we would love to hear a bit about you and your background. You have been at the helm of OSFI since 2021 and held a number of roles within the public service prior to that. But you also worked in the financial sector in your roles at National Bank as Managing Director of Research, and led the Canadian Financial Institutions Group at Moody’s Canada. We’d love to hear about how this background helped shape your experience and give some unique insight into the Canadian financial sector.

Superintendent Peter Routledge:

• My career has given me a view of the financial system from multiple angles. I’ve spent time in public service, but also on the market side. Seeing the system from inside institutions and from a supervisory perspective has been invaluable.
• That mix of experience reinforces the importance of balance. Markets need confidence, institutions need clarity, and supervisors need to be firm but practical. Having worked with boards, management teams, investors, and regulators, I’m very conscious of how supervisory expectations land in the real world.
• It has shaped how I think about resilience and risk. Strong institutions are built over time through good governance, sound risk management, and disciplined decision-making. Supervision works best when it reinforces those fundamentals rather than reacting late to problems.
• What’s stayed consistent across all those roles is the importance of trust. Whether you’re a regulator, a lender, or a broker, confidence in the system is what allows people to keep doing business through uncertainty. That’s ultimately what guides how I approach this role.

Moderator:

You recently indicated that OSFI will retain both the stress test and LTI but have hinted in the past that OSFI will examine the possibility of moving away from the stress test in favour of LTI limits. How do you see the future of mortgage regulation evolving?

Superintendent Peter Routledge:

• First of all, I recognize that the minimum qualifying rate for uninsured mortgages is a direct, empirical factor in bank underwriting decisions. OSFI has promulgated the expectation, in our residential mortgage underwriting guideline (B-20), that lenders should consider future conditions when qualifying uninsured mortgages. Specifically, the Superintendent maintains a specific test for that underwriting principle known as the mortgage stress test (or minimum qualifying rate for uninsured mortgages). I must confess that we are typically not as specific or rules-oriented in other regulatory matters.
• So, I certainly understand if your clients feel like that is a regulatory burden by a somewhat unknown government entity called OSFI. And so we remain open to feedback from lenders, the institutions we regulate, on how we can adapt our regulatory framework so that it supports confidence in the financial system and growth in the economy
• To that end, we have embarked on an ambitious program of regulatory modernization – reduced unnecessary regulatory documentation, shortened timelines for entry into the banking system, implemented reductions in capital required for some investments with more under consideration.
  • Over the past 18 months, OSFI has conducted the most comprehensive review of its regulatory content in its history. In total OSFI has eliminated 52 documents representing more than 600 pages of content in English and French.
  • We are streamlining our approvals framework, adjusting risk weighted assets for Small and Medium-Sized Deposit-Taking Institutions loans.
  • We are consulting on a comprehensive Credit Risk Management (CRM) Guideline to strengthen how institutions manage credit risk. The guideline will consolidate and streamline existing regulatory expectations and incorporate international best practices on credit risk. By clarifying its expectations in a single guideline, OSFI aims to enhance regulatory and supervisory efficiency.
• Despite our openness to regulatory modernization, federally regulated lenders have not asked to remove MQR or change B-20 in any way. Instead, they have asked us to continue on the aforementioned pathways of modernization.
• I suspect this is so because lenders quite like the MQR. They like it because it lowers their costs and removes competitive rivalry in lending standards for debt serviceability. As noted in Bank of Canada research, the MQR lowers the incidence of mortgage default which in turn leads to lower credit losses on mortgage loans.
• Nevertheless, we remain open to entreaties from our regulated constituents for all ideas pertaining to regulatory modernization, including B-20, but they will have to take the initiative. We are driving regulatory modernization from the expressed priorities of our regulated constituents, not from our own priorities.
• The LTI flow limit directly affects only institutions and does not directly affect a single borrower. Let me explain.
• The flow limit on mortgages with high Loan-to-Income ratios (i.e., above 450%) is a backstop. It basically sets a ceiling on the number of mortgages with high Loan-to-Income ratios an institution can lend out in a given period. A single institution may be able to lend out 20% or 25% of its mortgages to borrowers with high-LTI ratios and they have the right to choose how to distribute that cap.
• In periods of very low interest rates, the limit prevents the leverage and house price vicious spiral that can ignite. As of today, roughly 16-18% of uninsured mortgages, in aggregate, have loan-to-income ratios over 450%. Moreover, this tool binds or constrains virtually none of our regulated lenders. In fact, it will not become binding at institutions until that aggregate ratio rises into the mid-20s.
• We are eager to prevent igniting another cycle of excess leverage leading to fragile rises in house prices; as occurred in 2020 to 2021. At that time, low interest rates increased borrowing capacity and put upward pressure on home prices. Loan-to-income ratios above 450% doubled as a percentage of underwritings, and by a greater factor measured in mortgage dollars lent out. As this occurred, we observed 30%+ year-over-year house price appreciation for a sustained period of time.
• Loan to income limits would have tempered these buildups in highly leveraged mortgage origination volumes, and in turn, reduced credit risk to financial institutions’ mortgage portfolios.
• OSFI’s LTI flow limits pilot has worked well. LTI flow limits promote financial resilience by guarding against buildups of highly levered borrowers within residential mortgage portfolios. They are here to stay regardless of what happens with B-20.

Moderator:

In October, OSFI’s semi-annual update highlighted some risks to the Canadian economy with the escalation of tariff uncertainty, rising unemployment and continued housing market pressure. Transactions in the Canadian housing market remain below 10-year averages and credit delinquencies have ticked upwards from historically low levels, returning to pre-COVID levels. What risks are you most concerned about in the next year and how is OSFI responding?

Superintendent Peter Routledge:

• The risks we’re watching most closely are not new, but they are interacting in more complex ways. Slower growth, labour market softening, trade uncertainty, and ongoing housing market adjustment all matter more when they occur together rather than in isolation.
• Lower sales and declining home prices aren’t surprising—they reflect the market adjusting after years of very low interest rates. Delinquency rates remain low by historic standards, even as 90+ day delinquencies have increased over the past two years, with more pronounced increases in certain regions like Toronto and Vancouver. 
• As of November 2025, about 3.4 million mortgages or 58% of total mortgages will have to be renewed by the end of 2027. Of those, 1.6 million fixed rate and variable rate mortgages with fixed payments that originated prior to March 2022 will likely experience the largest payment increases.
• While we recognize that many households are facing higher payment requirements, our assessment is that these debt service levels remain manageable at the system level. With continued monitoring and prudent risk management, Canada’s financial system is well positioned to navigate this period of elevated but stable debt servicing.
• Credit risk and liquidity risk remain fundamental. Even modest increases in unemployment or refinancing pressure can affect household cash flows, so our focus is on ensuring institutions are prepared for stress before it shows up in losses. OSFI’s response is deliberately forward-looking. Tools like loan-to-income limits, sound underwriting expectations, and strong portfolio monitoring are designed to build resilience early, not to react once problems emerge.

Moderator:

We see a lot in the media about the condo market, particularly in the Greater Vancouver and Greater Toronto area, but also in some other parts of the country. Your semi-annual risk update highlighted that condo prices could negatively impact investor mortgages, drive down collateral values, and reduce investor appetite for new multi-family construction projects. This will have a direct impact on jobs supporting the housing construction sector and contribute to economic strain. Can you share a little more on your outlook on this and how OSFI is responding through its supervisory work?

Superintendent Peter Routledge:

• You’re right, we are closely monitoring conditions in the condo market, particularly in the Greater Vancouver Area and Greater Toronto Area, where investor concentration is higher, and price adjustments can have knock-on effects on collateral values and borrower behaviour.
• What matters most from a supervisory perspective is how institutions manage their exposures and maintain underwriting discipline, including robust collateral valuation practices. Canada’s mortgage system has benefited from strong underwriting standards, which have helped limit risk even as market conditions soften.
• A correction of prices and market activity does not automatically translate into systemic risk. Our focus is on whether vulnerabilities are becoming concentrated, especially where leverage is higher or where refinancing risks could emerge.
• We assess portfolio-level risk management, underwriting and stress testing practices, and governance oversight to ensure institutions are prepared for continued adjustment.
• Strong governance and early risk identification are critical. Institutions that actively monitor risks and adjust risk management practices early are better positioned to absorb market shifts without broader spillovers.

Moderator:

Since the global financial crisis, OSFI has helped to build a resilient financial system in Canada, a major strategic advantage. However, some argue that higher capital requirements and stricter oversight can slow down economic growth. How do you balance the need for a resilient financial system with the need to keep Canada’s economy competitive?

Superintendent Peter Routledge:

• We recently released a technical note on benchmarking Canadian bank capital ratios to international peers.
• Our analysis shows:
  • Canadian systemically important banks are well capitalized and are among the most profitable globally. 
  • Canada’s bank capital requirements are comparable to those of major international peers. 
  • OSFI’s oversight focuses on material risks while minimizing unnecessary burden, supporting financial stability and enabling banks to lend and invest.  
  • Canadian banks’ mortgage risk weights are lower than many peers. Canadian mortgage portfolios have demonstrated strong credit performance over time, and a significant portion of higher loan-to-value mortgages benefit from sovereign-backed mortgage insurance.
• OSFI calibrates capital requirements sector by sector, based on the underlying risk.
  • On the bank side, we have launched a consultation on draft CAR revisions that include targeted changes to certain commercial-type exposures. For example, the draft proposes more granular, risk-sensitive treatment for land acquisition, development and construction lending, and lower standardized risk weights for some SME and investment-grade corporate exposures, as well as for exposures to Canadian systemically important banks. Those proposals are still out for comment and are not yet final.
• These proposals include targeted recalibrations based on underlying risk that support productive lending while maintaining strong safeguards. In so doing, the draft revisions aim to contribute to a resilient financial system.

Moderator:

AI is a powerful tool for productivity—it can make underwriting faster and more efficient, for example. But it is also accelerating threats, particularly through sophisticated, AI-generated fake documents that fuel mortgage fraud and money laundering. As an association, fighting against mortgage fraud is a top priority, which is why we’ve prioritized advocacy with the federal government to move forward on a CRA-enabled income verification system. From your perspective at OSFI, how concerned are you that the rise of AI is outpacing the industry’s ability to defend itself?

Superintendent Peter Routledge:

• My guiding principle is to ‘first, do no harm.’ We will allow institutions the space to innovate, while remaining vigilant in identifying and addressing material risks as they emerge.
• We’re engaging with the Global Risk Institute and industry through the second Financial Industry Forum on Artificial Intelligence (FIFAI). That dialogue is helping shape principles for responsible AI use, including transparency, fairness, security, and accountability.
• Financial institutions are also adopting AI and can leverage these tools to better identify fraud or misrepresentation.
• As part of our Credit Risk Management consultation, we will consider our specific expectations related to income verification and where they could be improved or clarified. We will consult on any proposed changes when we publish that draft chapter, likely in 2027.
• We are supportive of any tool that supports lenders in rigorously verifying borrower income, including the planned CRA income verification tool. The CRA is developing that tool, so any questions on its development are best directed to them.

Moderator:

What does success look like for Canada’s financial system five to ten years from now?

Superintendent Peter Routledge:

• Success means a financial system that remains resilient through good and bad economic times.
• It also means strong governance, accountable leadership, and sound risk culture that ensures risks are identified early and addressed before they become systemic.
• A successful system supports sustainable housing finance. Underwriting and account management remain prudent and highly leveraged lending is managed.
• Success means a healthy competition and innovation in the financial system, including embracing new technologies and models, while applying a “same activity, same risk” approach so innovation does not undermine stability.
• And finally, success means Canada continues to be viewed internationally as having a well-capitalized, well-regulated system that supports long-term economic growth.

Moderator:

How does OSFI currently assess the effectiveness of its mortgage underwriting guidelines (e.g., stress test, risk weights) in today’s high-rate, slowing housing market, and what key metrics should brokers be aware of that might signal future calibration?

Superintendent Peter Routledge:

• We recently released a a benchmarking report comparing Canadian Systemically Important Banks’ (SIBs) capital ratios, risk weights, and profitability to major international peers.
  • We found that Canadian banks’ mortgage risk weights are lower than many peers.
  • The Canadian capital regime is proportionate, supports global competitiveness and long-term stability.
  • Canadian systemically important banks are amongst the most profitable in the world.
• OSFI looks at whether underwriting measures are achieving their prudential purpose. That means limiting the build-up of highly leveraged lending in good times and supporting resilience in stress, rather than targeting a housing outcome or price level.
• We assess effectiveness using a mix of portfolio-level indicators and loan performance data. This includes trends in arrears and delinquencies, debt-service capacity, borrower type (owner-occupied, investor), regional differences, and changes to the economic environment, such as increases in unemployment rates and uncertainty driven by potential U.S. trade protectionism.

Moderator:

What is the single biggest risk to Canada’s financial system that isn’t being talked about enough? And what should policymakers, lenders, and consumers be watching most closely?

Superintendent Peter Routledge:

• Non-bank financial intermediation (NBFI) can support traditional banking and financial markets by fostering competition, enabling hedging, aiding in price discovery and offering market stabilization in times of stress.
• However, NBFIs often engage in maturity, liquidity or credit transformation by taking on high amounts of financial or synthetic leverage. Their lack of transparency, procyclical behaviour, and growing interconnectedness with the financial system can present significant systemic risks and threaten financial stability.
• The NBFI sector has grown significantly in recent years, with rising asset valuations across a broad range of markets.
• OSFI is seeking to ensure that institutions monitor, understand, and report their NBFI exposures and risks in a coherent and comprehensive way. As part of our credit risk management consultation, OSFI is seeking input by July 29th.

Moderator:

Non-bank and private lending channels continue to grow as traditional underwriting remains tight. How does OSFI evaluate systemic risk that sits outside the FRFI perimeter, and what blind spots or spillovers in that part of the market are you paying closest attention to?

Superintendent Peter Routledge:

• First, we stay in our lane. OSFI supervises federally regulated banks and insurers, so we focus on whether those institutions are building up direct or indirect exposures to non-bank lenders, and whether their risk management is keeping pace.
• Second, we watch the “spillover points”. That means funding and liquidity links, credit risk transfer, and counterparty exposures. If risk is moving out of the regulated perimeter but still boomerangs back through FRFIs, that is where it becomes prudentially relevant for us.
• Third, we coordinate and pressure-test assumptions. We use our supervisory dialogue to make sure institutions are not relying on “someone else is watching that” as a risk strategy. If it looks like the system is building risk in the shadows, we lean in early through expectations on governance, concentration, and risk appetite.