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Banking regulator looking at higher capital buffer for climate risks – Yahoo Canada Finance

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TORONTO — The head of Canada’s banking regulator says he’s looking to increase the amount of reserve capital that banks need to hold to protect against climate change risks.

Peter Routledge, who leads the Office of the Superintendent of Financial Institutions, said Monday that while it likely won’t happen this year, it’s important that banks build up capital buffers this decade to guard against potentially increasing volatility ahead.

“We will do all that we can to make sure our financial systems can weather the rising incidence and severity of climate events that will occur in this decade and the next.”

He said that market players increasingly recognize the risks of climate change but that the regulator still has to ensure enough is being done.

“We will have to ask hard questions of the entities we supervise to ensure they have sufficient capacity in the form of buffers, capital and otherwise, and risk management discipline, to absorb intensifying physical climate risks.”

Speaking at RBC’s Canadian bank CEO conference, Routledge said it’s important to increase resilience to both the physical risks of climate change and the transition risks as the global economy shifts towards net zero emissions.

He says that while the world may start moving away from emissions this decade in a more measured approach, action could be delayed until next decade — when any transition would be more rushed and volatile.

Routledge says that along with work on the buffer, the regulator will launch discussions with financial institutions as it looks to produce climate risk management guidelines later this year.

He said OSFI wasn’t first, but is an early mover internationally on guidelines that are still limited as measurement standards and policies are still being defined.

In the U.S., the Office of the Comptroller of the Currency, which regulates national banks, put out draft guidelines on climate in December that spells out some expectations on how banks look at climate-related risks and incorporates those risks into strategic planning.

RBC chief executive Dave McKay said it was still early days in the transition, without clear plans to get towards net-zero economies.

“This is a journey. We’re just learning how to measure climate and greenhouse gas emissions in our portfolio. We’re just learning and trying to understand inherent risks and volatility. This is an evolution.”

He said that while there is still much unknown about the energy transition, what is clear is that Canada will require a lot of capital to make the shift so the government should be cautious about its policies.

“I do want to stress that maintaining competitive policies, competitive capital structures, competitive tax structure in this country is essential to maintaining a prosperous Canada and a competitive Canada into the future.”

This report by The Canadian Press was first published Jan. 10, 2022.

Companies in this story: (TSX:RY)

Ian Bickis, The Canadian Press

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Workers at Teck Resources’ British Columbia mine to hold ratification vote

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Canadian miner Teck Resources Ltd said on Monday that a union representing 1,048 workers at its British Columbia mine has agreed to hold a ratification vote on the mediators’ recommendation.

The union will schedule a ratification vote to be concluded no later than January 24, the company said.

Last week, the company said it had received a strike notice https://reut.rs/3A7TJZQ from the union at its Highland Valley Copper Operations in British Columbia, without providing any reasons behind the potential strike.

 

(Reporting by Rithika Krishna in Bengaluru; Editing by Chizu Nomiyama)

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Markets split on BoC decision as business survey, inflation loom – BNN

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The Bank of Canada is getting a pair of key indicators this week ahead of a rate decision next Wednesday that’s virtually a coin toss, as far as markets are concerned.

First up on Monday, the central bank releases its quarterly Business Outlook Survey, which provides a snapshot of how approximately 100 corporate leaders are feeling about the economy and their own business fundamentals.

When the last survey was released in October, it showed the broadest gauge of sentiment was at the highest level in the survey’s history. That was despite worsening labour shortages and as more than half of respondents (57 per cent) said they expected labour costs to accelerate over the next year.

“[Monday’s] Business Outlook Survey might have been completed too early to catch Omicron uncertainties, so expect respondents to retain a healthy dose of optimism,” said CIBC World Markets Chief Economist Avery Shenfeld in a report to clients Friday.

“The survey could show a majority expecting inflation to run above the top end of the Bank of Canada’s one-three per cent inflation band. If not for Omicron, that would spell a rate hike in January, but the uncertainties surrounding how long this disruption will last should be enough to defer that decision.”

Meanwhile, Statistics Canada will release the consumer price index for December on Wednesday. Economists are expecting to see inflation rose 4.8 per cent year-over-year in the month; that would be the fastest rate of growth since 1991.

As of 8:30 a.m. Monday morning, market data shows investors see a 59 per cent chance of a rate hike when the Bank of Canada delivers its decision on Jan. 26.

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House Price Index rose 26% in 2021, fastest pace on record – CBC News

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The Canadian Real Estate Association’s House Price Index rose by 26.6 per cent in the 12 months up to December, the fastest annual pace of gain on record.

The group, which represents more than 100,000 realtors and tabulates sales data from homes that listed and sell via the Multiple Listings Service, said the supply of homes for sale at the end of the month hit an all-time low.

After pausing for a few weeks in the early days of the pandemic, Canada’s housing market has been on an absolute tear for the past two years, as feverish demand from buyers wishing to take advantage of rock-bottom interest rates has drastically outpaced the supply of homes to buy.

That imbalance is a major factor contributing to higher prices, as buyers have to pay more and more to outbid others because of the lack of alternatives.

Various experts are suggesting that parts of the country are showing signs of being in a speculative bubble, and CREA says the biggest reason for runaway price increases is that there aren’t enough homes being put up for sale.

“There are currently fewer properties listed for sale in Canada than at any point on record,” CREA’s chief economist Shaun Cathcart said. “So unfortunately, the housing affordability problem facing the country is likely to get worse before it gets better.”

High prices not denting demand

CREA says the average price of a Canadian home that sold on MLS in December went for $713,500. That’s actually down from the record high of more than $720,000 in November, but still well up on an annual basis.


High prices don’t seem to be slowing demand, however, as 2021 was the busiest year for home sales ever. Some 666,995 residential properties traded hands on MLS last year, smashing the previous annual record by 20 per cent.

TD Bank economist Rishi Sondhi said that there was a less than two-month supply of homes for sale during the month, which means at the current sales pace, all listings would be gone in less than two months. Under normal conditions, there’s a five-month supply of homes for sale, and Sondhi says that supply and demand imbalance is a major factor in eye-popping price gains.

“With interest-rate pull-forward behaviour keeping demand so strong, and supply struggling to keep up, it’s little wonder why prices are continuing their relentless upward march,” he said. “Buyers pulling forward demand ahead of looming interest rate hikes kept sales at unsustainable levels last month. How long this effect will last is uncertain, but it should eventually fade.”

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