Loading articles...

CMHC passes stress test for severe scenarios such as cyber attack and earthquake

Last Updated Oct 2, 2018 at 1:43 pm PDT

A real estate sign is pictured in Vancouver, B.C., Tuesday, June, 12, 2018. THE CANADIAN PRESS Jonathan Hayward
Summary

The housing agency says its capital holdings are sufficient to withstand several extreme scenarios

It says it would also be able to fare well against a cyber attack on a Canadian financial institution

TORONTO — Canada Mortgage and Housing Corp. says its mortgage loan insurance and securitization businesses are stable enough to withstand several extreme scenarios.

In its annual stress test, the housing agency says its capital holdings are sufficient to weather against severe financial stress, a sustained low oil price and a global trade war.

It says it would also be able to fare well against a cyber attack on a Canadian financial institution, an earthquake and a major volcanic eruption.

“As a responsible risk manager, we seek out extreme almost unimaginable situations and ask ourselves ‘What if?”’ said Steve Mennill, the agency’s chief risk officer. “That’s the goal of our stress testing, to measure how we would stand up to these unlikely shocks.”

He told a conference call Tuesday that CMHC is in a “better position” now than it was last year to fare against these scenarios.

Mennill added that one of these situations also accounted for an interest rate hike, a move anticipated to happen later this month when the Bank of Canada meets.

The Bank of Canada’s trend-setting interest rate currently sits at 1.5 per cent after four increases since the middle of last year.

“We are quite confident we can withstand even fairly extreme increases in interest rates,” he said, noting that the agency factored in a scenario where the posted mortgage rate was 7 per cent for a sustained time period.

“That’s a considerable increase over where rates are now.”

CMHC first began releasing its stress test results publicly in 2015.

The agency provides mortgage loan insurance for home buyers as well as securitization guarantee programs to help financial institutions.