Canada’s top banking regulator wants big banks to do more for small businesses.
Driving the news: Peter Routledge, the head of OSFI, told a Senate committee on banking, commerce, and the economy that Canada’s banks can afford to lend more to Canadian small- and medium-sized enterprises (SMEs), and should shift their strategies to do so.
He brought up a US$1.5 trillion pledge JPMorgan Chase made last year to invest in industries that bolster the U.S. economy as an initiative our banks should mimic.
“Well, wouldn’t it be great if we had some Canadian banks step up and make the same commitment to Canada?” Routledge says. Gotta say, we love the sassiness.
Catch-up: OSFI has been nudging lenders to drum up more cash for local businesses for a little while. Last year, the regulator changed capital requirement rules for smaller lenders to make SME loans less onerous. It’s now considering doing the same for the Big Six banks.
Under the proposal, lenders would have to set aside 75% of an SME loan’s value to cover it in case it goes bad, down from the previous threshold of 85%.
Why it matters: Boosting institutional investments in Canada is a hot topic right now (see also: pension funds), and Canada’s SME space could really use a lift. According to an MEI report, Canada lost 151,000 businesses and entrepreneurs between its peak in 2005 and 2025. That number is on track to get even higher as business closures outpace openings.
Zoom out: Part of the solution could lie in reducing SME’s dependence on big banks for loans. The Competition Bureau is working on a study on how to improve the lending environment for SMEs and create more opportunities for non-traditional lenders like fintechs.—QH
