Ottawa intends to bolster its oversight of the mortgage insurance industry and stop lenders from mailing out unsolicited credit card cheques in two budget initiatives targeting the financial sector.
But compared with recent years, the 2011 budget is noticeably light on measures that are aimed chiefly at the banking sector and financial consumers, highlighting Ottawa's focus on small businesses and mainstream voters in this post-financial-crisis, pre-election era.
The budget also shows how cautious the minority government's approach is right now on contentious topics, such as mortgage insurance. The measures that are announced are so lacking in detail that they are nearly impossible to interpret, let alone quibble with.
"It's basically a stay-tuned budget," said Craig Alexander, chief economist at Toronto-Dominion Bank. "They have identified a whole variety of areas that they will be looking into in terms of financial sector regulation, but without a lot of detail about what they're going to do."
The result is a budget that's unlikely to garner a strong reaction one way or the other from financial markets or the business community, Mr. Alexander said.
For instance, the government says it will introduce legislation to reinforce the stability of "Canadian housing finance" and strengthen the mortgage insurance regime. But it's not clear what, if any, changes would result.
The budget documents state only that Ottawa "will introduce a legislative framework that will formalize existing mortgage insurance arrangements with private mortgage insurers and Canada Mortgage and Housing Corporation, including the rules for Government-backed insured mortgages. The measures strengthen the Government's oversight of the mortgage insurance industry."
Officials suggested the move is likely to put into law the power that Finance Minister Jim Flaherty already exercises when he makes changes to the rules that determine when a borrower is eligible for mortgage insurance, such as the changes he announced in January that included reducing the maximum length of insured mortgages. At the moment, the government deals with Canada Mortgage and Housing Corp.'s private-sector competitors, such as Genworth, by way of contracts rather than law. With this legislation, new competitors will be automatically subject to the same rules.
Similarly, Ottawa said it is developing measures to govern prepaid credit cards, and "will continue to monitor developments in the financial sector and take additional targeted action as needed to protect consumers' interests," but was light on details.
The government is proposing to stop banks from sending out credit card cheques unless consumers have asked for them, a move aimed at curtailing the dramatic growth of consumer debt levels. This move is not expected to have a significant effect on the financial services industry.
The budget also says that "the government is responding to concerns regarding the terms and conditions associated with network-branded prepaid cards by developing measures to enhance the consumer protection framework." But, much like the provisions on mortgage insurance, few details were offered.
The government reiterated that it is working on legislation for covered bonds to make it easier for banks to raise funds by selling debt securities backed by assets such as mortgages, and it announced that it proposes devoting $3-million a year to financial literacy and that it will appoint a federal Financial Literacy Leader shortly, as the Task Force on Financial Literacy suggested.
The budget also reiterates Ottawa's commitment to implementing Pooled Registered Pension Plans, a new savings vehicle that's targeted mainly at the self-employed and small businesses. Insurers and banks are eagerly awaiting the creation of PRPPs, which will provide them with a line of business.
In addition, "federal, provincial and territorial governments are continuing work on options for a modest enhancement to the CPP," the budget stated.
Ottawa has also temporarily extended the new powers it gave to Export Development Canada two years ago, enabling EDC to provide financing to Canadian exporters designed to help them in the domestic market. The crown corporation will be able to continue to do that until March, 2012.
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