Banks can restrain rising household debt in Canada

Canada, 26th February: Banks, being the main source of mortgages, can assume a higher responsibility in curbing the piling household debt in Canada.

Canada, 26th February: Banks, being the main source of mortgages, can assume a higher responsibility in curbing the piling household debt in Canada.

This has been stated by Action Canada Task Force on Household Debt in its latest report revealed yesterday.

The report stresses on the need for making the banks accept at least some, if not the whole responsibility for helping consumers focus on smarter borrowing.
There is an increased onus for collaborations between the banking industry and the Canadian Department of Finance for preparing a compulsory code of conduct for lending practices in Canada, the report highlighted.
Control lending standards—Banks told–
The report stresses that that code should focus on stricter lending standards for applicants of mortgages and higher control on lines of credit in Canada.
Head of research for the Canada task force and a visiting scholar in Behavioral Economics at MIT Sloan School of Management, Derek Dunfield said detailed consultations were held with several bankers in Canada by the task force and it was found that they were ready to assume responsibility in finding a solution to the problem of high levels of debt in Canada.
A neuroscientist, Dunfield stated that the Canadian finance ministry must formulate a code of conduct on lending practices in Canada which should be adhered to by the Canadian banks for recommending borrowing and repayment schemes. This is the need of the hour since Canada’s soaring debt levels could spell disaster for the economy, Dunfield warned.
Canadians, for long, have been criticized and warned to control their splurging habits which have inevitably resulted in high household debt levels. Mark Carney, Governor of Bank of Canada, has cautioned Canadians for controlling high household debts while Jim Flaherty, the Canadian Finance Minister had recently introduced strict mortgage regulations for curbing the household debts in Canada.
Canada’s household debt shows a shocking figure of $1.5 trillion highlighting the lack luster and irresponsible attitude of majority of us, the Action Canada report highlights.
Possible problems for Canada economy due to high household debts—
•    There are two possibilities highlighted by Mr. Dunfield in the report. One is the situation where a higher number of Canadians might feel compelled to default their mortgage obligations in an economy where house prices go down and interest rates go up.

•    Another situation likely to be the result the higher levels of household debts could be where there is a slight increase in interest rates and a large chunk of disposable income is spent towards debt repayment leading to a fall in consumer spending, adds Mr. Dunfield. This would result in ‘made in Canada’ economic crisis since nearly 58 percent of the Canadian GDP comes from the personal consumer spending, he cautions.
Gist of the report—
The report reiterates on the increasing need for Canada’s banks to assume higher responsibility for smarter borrowing among Canadians.

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