Canada’s strong regulatory regime made it “highly resilient” to the financial crisis, while the US housing market was struggling with “unsustainable” levels of debt, research has claimed.
The two systems are contrasted in two papers published in the latest edition of National Institute Economic Review.
In the 10-page paper, The Market Structure of Securitisation and the US Housing Bubble, Susan Wachter said the change in the structure of securitisation in the US led to unsustainable levels of debt.
The 12-page Housing Finance in Canada: Looking Back to Move Forward, written by Lawrence Schembri, the deputy governor of the Bank of Canada, said the system of housing finance in Canada consisted of three sets of institutions – mortgage originators/holders, mortgage insurers and the suppliers of funding – whose interactions were influenced by the policy framework.
He said: “The regulatory and supervisory framework has a significant impact on the underwriting standards of lenders and the types of mortgage products available in Canada.”
Mr Schembri was appointed to his position by Mark Carney, then governor of the Bank of Canada, and now governor of the Bank of England.
In his role at the Bank of England, Mr Carney is chairman of the Financial Policy Committee, which has macroprudential powers that can be used to curb dangerous excesses in the housing market.
Adviser view
James Poore, of Surrey-based Kingston Mortgage Service, said: “We have just had major changes and I don’t think there is any need for further changes.
“I don’t think there is an issue with the regulations at the moment, and they have just tightened them up, which is for the better.”
