Evan Siddall, President and Chief Executive Officer of the Canada Mortgage and Housing Corporation (CMHC) sits down with the Globe and Mail for an interview on June 16 2014.Fred Lum/The Globe and Mail
Getting at exactly how much Canadian taxpayers subsidize the country's banks through mortgage-securitization guarantees is an inexact business, but it's clear that, while the number would be significant, the nation's lenders would not suffer too badly.
Canada Mortgage & Housing Corp. chief executive officer Evan Siddall said this week in an interview with the Globe and Mail that the subsidy should go.
Banks can get cheaper funding by using the CMHC securitization system to sell mortgages than they can from other types of funding aside from deposits. That gap represents a subsidy.
"I think that gap needs to close," Mr. Siddall said. He said, however, that nothing is imminent and the CMHC will be very careful.
In sending the message, however, Mr. Siddall is once again letting the banks know to start planning for life after CMHC's securitization program.
Already, covered bonds are more popular, and banks are getting ready for a shift, as Finn Poschmann of the C.D. Howe Institute wrote a year ago.
What is the value of that gap to banks?
It's hard to quantify. Toronto-Dominion Bank got $41.8-billion of its $177-billion of wholesale funding from mortgage-backed securities last quarter. At Royal Bank of Canada, the number was $31-billion of $191-billion.
And of course, wholesale funding trails deposits as a source of funding. RBC has $375-billion of deposits, accounting for more than half all its funding. In other words, securitizing mortgages, as big as it is, is a relatively small piece of the funding pie. If costs jumped 20 or 30 basis points, it would not hugely alter the banks' funding costs.
Moreover, it's arguably a good time to make the change.
Wholesale bank funding costs are low and have been very stable since August of 2009, when the worst of the financial crisis in bank funding markets receded. That's evident in figures from the Bank of Canada.
Canada's banks still have a rosy glow, and debt markets in general are wide open and welcoming. There might be some concern about housing risk that tacks on some costs for banks in funding markets, but in a way, that's exactly the point of closing the gap.