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Julie Dickson thinks it will be “Painful” when Interest Rates Rise

Julie Dickson may have plans for resigning from OSFI next year but she’s definitely not going to be content just sitting quietly in the meanwhile. During the Bloomberg Canada Economic Summit in Toronto on Tuesday, she spoke of the concern she has for Canadian banks, businesses currently depending on cheap credit, and households that will be hurt when interest rates eventually rise.

“Dependence on low interest rates can become significant, meaning that the transition to higher rates could be very painful,” Dickson told the Summit group.

She said that in order to promote continued stability in Canada’s banking system, and to ensure that it will show ongoing strength, the nation’s banks will be required to conform to Basel III requirements with no cushion put in place for them, and nearly six years earlier than the global deadline.

These global standards put limits and restrictions on capital and liquidity after the 2008 crisis. International banks have until 2019 to conform to them, but Canada’s banks will be required to do that this year, said Dickson.

She did point towards the fact that Canada currently has one of the strongest banking systems in the world, but also states that “the current global economic environment is not comforting.”

She also stated, “We’ve seen that failing banking systems can wreak havoc on economies,” and is only trying to stop the same fate from befalling this country.

Commenting on the real estate market, after the Crown Corporation CMHC was placed under OSFI’s supervision last year, she stated very little, only that, “We’re happy to see there has been an adjustment in the real estate market.”

During a panel discussion that took place after the event Doug Porter, chief economist at BMO Capital Markets, said that interest rates don’t worry him that much, as he doesn’t expect to see a huge rise within the next several years.

“I don’t lose any sleep over an interest rate spike,” said Porter. “The big surprise in recent years has been how tame inflation has been.”

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