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Clients have shown resilience as well. Many mortgage-payment deferrals granted by the banks ended in October and Bank of Canada Deputy Governor Toni Gravelle noted on Monday that more than 99 per cent of households whose debt deferrals expired have resumed repayment.
The longer the pandemic constrains jobs and incomes … the greater the risk of defaults that could impair the whole financial system
Toni Gravelle, Bank of Canada
However, both Gravelle and Rudin warned that things could still take a turn, as COVID-19 cases have been increasing and some provinces have had to reimpose economic and social restrictions. Rudin also said “compliance fatigue” is on the rise.
Furthermore, a widely distributed vaccine could still be months away, putting pressure on people and businesses whose livelihoods and revenues hinge on a return to more normal conditions.
“The longer the pandemic constrains jobs and incomes, the greater the risk of financial trouble for highly indebted households, and the greater the risk of defaults that could impair the whole financial system,” Gravelle said, according to a transcript of his speech.
If the economy locks up again, creating a “W-shaped scenario,” OSFI may need to further lower the domestic stability buffer it has for the big banks, Rudin said. That buffer currently requires high-quality capital equal to one per cent of a lender’s risk-weighted assets, such as loans, after the regulator lowered it from 2.25 per cent in March.
“The good news — and it’s very good news — is that there is plenty of capital for the banking system to be able to continue its shock-absorber role,” Rudin said.