Canada to Introduce Budget Bill That May Alter CMHC Rules

Canadian Finance Minister Jim Flaherty plans to introduce legislation as early as tomorrow that may contain changes to the oversight of Canada Mortgage & Housing Corp. and rules governing covered bonds.

The government said yesterday it plans to introduce a law “to implement certain provisions of the budget,” according to a document known as the Notice Paper. Under parliamentary rules, the legislation can be introduced in the House of Commons as early as tomorrow.

In his March 29 budget, Flaherty said the government will introduce “enhancements to the governance and oversight framework” for CMHC, which insures mortgages and guarantees mortgage-backed securities issued by banks.

Asked about the potential role of the Office of the Superintendent of Financial Institutions in overseeing CMHC, Flaherty told reporters “I’ll talk to you about that tomorrow. Tomorrow’s Thursday, right?”

The International Monetary Fund has called on the federal government to review the agency’s governance and oversight, and assess whether the agency needs to do more to protect itself against housing market risks.

The government is considering whether OSFI, the banking regulator, can play a role in “strengthening the oversight of CMHC’s commercial operations,” Chisholm Pothier, Flaherty’s chief spokesman, said in an e-mail April 3. Pothier declined to comment today on the government’s plans.

Covered Bond Legislation

Flaherty also said in the budget that he would introduce legislation to govern covered bonds, fixed-income securities sold by banks using pools of mortgages as collateral. The federal government guarantees the full value of mortgages insured by CMHC and 90 percent of loans insured by private firms.

The Finance Department said in a May consultation paper it was considering whether the law should encourage banks to secure covered bonds with uninsured mortgages. If Canada barred banks from securing covered bonds with government-insured loans, it would raise costs for covered bonds because issuers would need to pledge more collateral to gain AAA ratings.

Canadian banks increased issuance of covered bonds this year before Flaherty’s fiscal plan. The lenders sold $12.6 billion in covered bonds in the December-March period, compared with $6.6 billion in the same period a year earlier, according to data compiled by Bloomberg.

To contact the reporter on this story: Andrew Mayeda in Ottawa at

To contact the editor responsible for this story: Chris Wellisz at

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