Bank of Canada governor Stephen Poloz has been conspicuously silent about the Home Capital situation.Sean Kilpatrick/The Canadian Press
There is no shortage of opinions in Canada's financial community about Home Capital Group Inc. So when are we going to hear the Bank of Canada's?
Last week, Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce, issued a report suggesting it was high time the central bank say something about the embattled mortgage company, to calm concerns in international markets that Home Capital might be some sort of canary in the coal mine for Canada's financial system. Those fears have contributed to a sell-off in the Canadian dollar, which has been trading near 15-month lows over the past couple of weeks.
"Somebody has to stand for Canada. And that somebody must be the central bank," Mr. Tal said.
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That's particularly true when it comes to financial-system stability in the postcrisis era. The Bank of Canada under its current governor, Stephen Poloz, has increased its focus on financial stability, elevating it to near-equal status with its central goal of maintaining low and stable inflation. In this role, it is incumbent on the central bank to assess and address issues regarding the health of Canada's financial system; Home Capital certainly seems to fit the bill.
And yet Mr. Poloz has been conspicuously silent about the Home Capital situation. Twice in recent weeks he has been asked by reporters to comment on Home Capital, most recently after a speech last week in Mexico – arguably an ideal opportunity to address the financial market's concerns in front of an international business audience. Both times, Mr. Poloz declined comment, citing his blanket policy of not publicly discussing specific financial institutions. Inquiries to Bank of Canada staff get the same response: Polite central banks don't talk about that sort of thing.
But don't mistake the Bank of Canada's silence for a lack of interest. Its top brass have been in frequent contact with other key financial-oversight bodies, most notably the Office of the Superintendent of Financial Institutions and the Department of Finance, as the Home Capital story has unfolded. In its traditional role as the country's lender of last resort, the Bank of Canada stands as Home Capital's ultimate lifeline; it has the discretion, under its Emergency Lending Assistance provision, to inject emergency funding if all else fails. It clearly has a vested interest in Home Capital's fate, and behind closed doors, it certainly hasn't been silent.
Whether it's time to take its views public is another matter.
It would hardly be unprecedented for a Bank of Canada governor to speak out when the markets are, in the bank's view, either misinterpreting or overreacting to economic and financial conditions and risks. The Canadian dollar has been its most frequent target in this regard, but Mr. Poloz has also sent public messages to the markets about their rate-cut assumptions (after his surprise cut in early 2015) and, more recently, about the hot air inflating the Toronto and Vancouver housing markets.
However, Mr. Poloz also believes that, within reason, the financial markets should be left to interpret events and underlying fundamentals for themselves; indeed, he has been very consciously moving the markets away from their financial-crisis-era mentality of expecting central banks to tell them what to think. As long as the markets are operating in an orderly fashion, his inclination is to let them price in risks as they see fit.
And so far, there has been little reason to treat the Home Capital case any differently. Yes, the Canadian dollar has been hit, but only to the tune of 3 per cent against its U.S. counterpart since the end of March, and at least part of that can be attributed to international worries about the future of the NAFTA trade pact. Yes, financial-sector stocks have been sold off, but the stock market overall has held up.
Still, the central bank may soon break its silence. While it's highly unlikely to talk about Home Capital specifically, its oversight of financial stability will compel it to share its assessment of risks to the financial system in due course. Upcoming are two golden opportunities to do so: In the bank's brief interest-rate announcement on May 24, and in considerably more detail in its semi-annual Financial System Review on June 8.
There is a slim chance that Mr. Poloz may choose to address the elephant in the room before then – such as, say, in any media interviews he might give at the G7 meetings in Italy, which wrap up this weekend. But in the absence of a market meltdown and/or a severe deepening of Home Capital's crisis, expect the silent treatment to hold for at least a little while longer.