May 14 Home Capital Group’s problems are
contained but the sharp gains in Canadian home prices and their
possible impact on the financial system are a primary concern
for the Bank of Canada, Governor Stephen Poloz said in an
interview with the Globe and Mail newspaper.
Poloz said the central bank saw no signs that Home Capital’s
deterioration had triggered contagion, according to an interview
with the newspaper on the sidelines of the Group of Seven
meeting of finance ministers and central bankers in Italy.
“We’d be looking for signs that there are problems with the
(financial) system as opposed to preoccupying ourselves with
individual institutions,” Poloz said.
“The question would be: What caused this? Is it something
unique to the institution itself, or is it something in the
system? … I think this situation (Home Capital) is pretty clear
on that; it’s idiosyncratic.”
Home Capital, Canada’s biggest non-bank lender, faced a
sharp withdrawal of deposits after a regulator said it made
misleading statements to investors about its mortgage
underwriting business. The company has said the accusations are
without merit.
In the interview, Poloz said the Office of the
Superintendent of Financial Institutions and the Canada Deposit
Insurance Corp were closely monitoring Home Capital while the
Bank of Canada monitored the overall health of the financial
system.
He declined to say whether the Bank of Canada offered
emergency liquidity assistance – a collateralized loan of last
resort – to Home Capital or whether it might do so if Home
Capital’s private-sector funding proves insufficient to
stabilize the company.
The governor gave no hint that Home Capital might still
request such assistance, noting that “the private sector was
able to create a solution for this firm, so that’s good – the
system in action.”
Poloz also reiterated in the interview the central bank’s
view that recent house price increases were not sustainable, and
echoed previous statements that some speculation appeared to be
at play in the market. He added that did not mean a major price
correction was in store.
“Often, when you have a truly unsustainable housing market,
you will see very rapid price increases (and) very rapid credit
growth,” Poloz said. “But we don’t see that in the credit side,
so I do think a significant amount of this that is fundamental,
but layered on top, is a speculative element.”
(Reporting by Andrea Hopkins; Editing by Peter Cooney)