Flaherty raps banks on lending stance

Finance Minister Jim Flaherty fired back Thursday at those in Canada's banking industry who have called on Ottawa to tighten lending regulations in order to check the growth inCanadians' highpersonal debt loads.

"I find it a bit off that some of the bank executives are taking the position that the Minister of Finance or the government somehow should tell them how to run their business," Flaherty saidat a news conference in Stittsville, in Ottawas west end, during an event to promote the governments tax credit for volunteer fire fighters.

"They must forget that they are actually the ones who issue the mortgages," Flaherty said.

"Its their market. Its not my market. They decide what they want to charge in interest rates. Theyre the ones who make the profits out of this business, so I do find it a bit much when some of the bank executives turn to the government, the Minister of Finance and say, "You ought to change the rules and make it tighter."

Last week, TD Bank's chief economist Craig Alexander called on the governmentto moveto head off Canada's overheated housing market.

Alexander suggested three options the government could adopt, including reducing the maximum amortization on mortgages to 25 years from 30 or hiking the minimum down payment to seven per cent from five.

As a third option, he suggested a stress test for those seeking loans by ensuring they can afford to make payments as if mortgage interest charges rise to 5.5 per cent, about twice as high as many current rates.

As well, the Bank of Canada has repeatedly raised its concerns about household debt.

The government has alreadyintervened threetimes to tighten the ruleson mortgage lending and Flaherty said Thursday, given signs of overvaluation in Canada'sproperty market, the government is preparedto tighten mortgage insurance rules again, if necessary.

The government has moved in the last four years to lower the maximum amortization period from 40 years to 30, raise minimum down payments to qualify for government-insured mortgages and required borrowers who want insurance to first show they can qualify for a five-year, fixed mortgage.

Minister downplays coming budget cuts

Flaherty also downplayed the extent of spending cuts coming in thebudget to be released in exactly one week.

He said it will contain only "modest" reductions and will place greater emphasis on promoting innovation and immigration.

He told journalists that if they focus on spending restraint, they will "miss most of what the budget is about."

On Monday, Canadas financial regulator announcedproposed newrules to tighten mortgagepractices andrequire banks to check more carefully whata property is worth before lendingand to delve deeper intoborrowers' financial strength.

The ratio of debt-to-personal disposable income is now above 150 per cent.Alexander predicted itis likely to reach by late next year the 160 per cent peak experienced in the U.S. and the U.K. before their real estate corrections occurred.

The concern is that when interest rates do return to historically normal levels, about 10 per cent of Canadians whocurrently have debt, would have to devote 40 per cent or more of their income to making their monthly debt payments.