Summary:
Canada’s banking regulator, Peter Routledge of OSFI, signaled a shift toward fostering innovation and competition in the financial sector by accepting higher risk tolerance for challenger institutions. This comes amid criticism of Canada’s banking “oligopoly” from Bank of Canada’s Carolyn Rogers, who linked concentrated markets to sluggish productivity. OSFI may adjust capital rules to incentivize small-business lending while maintaining prudent oversight. The regulator also addressed mortgage delinquencies, noting Toronto’s elevated but manageable risk levels.
What This Means for You:
- Entrepreneurs: Expect easier access to capital as OSFI encourages banks to increase small-business lending through potential capital rule adjustments.
- Fintech Startups: Regulatory openness to innovation may reduce barriers to entry, though Routledge emphasizes an incremental approach to changes.
- Homebuyers: While Toronto’s delinquency rates (0.24%) exceed national averages (0.22%), OSFI considers current underwriting standards sufficient to prevent systemic risk.
- Investors: Monitor OSFI’s upcoming policy tweaks, which could reshape competitive dynamics in Canada’s $2.1 trillion banking sector.
Original Post:
By Melissa Shin
(Bloomberg) — Canada’s banking regulator said he’s willing to be “a little bit less conservative” to increase competition in the sector.
“We would have to accept that if you let innovators in, for every 10 innovators, eight of them probably don’t succeed,” Peter Routledge, the country’s superintendent of financial institutions, told reporters after a speech in Toronto on Friday. “There’s this natural bias in our system that causes us to be averse to institution failure. If you want more innovation in the system, you’ve got to lighten up that aversion.”
Speaking to the Economic Club of Canada, Routledge said the Office of the Superintendent of Financial Institutions would also consider measures to encourage more lending to smaller businesses, with an eye toward spurring productivity.
“There are some things we can do where we could perhaps use certain adjustments or capital rules to make it a little bit more attractive to do small and medium-sized loans,” he said.
On Thursday, Bank of Canada Senior Deputy Governor Carolyn Rogers called the country’s banking system an “oligopoly,” using the sector as an example of how limited competition restricts growth. Concentration in industries is a major reason for Canada’s sluggish productivity growth and investment, she said.
“I agree with what she said in her speech,” Routledge said. “We have a particular burden of responsibility to make it easier for smaller challenger institutions to compete in our system.”
If innovation occurs outside the regulatory system, it’s “because something we’re doing causes the innovators to choose to stay outside the system,” Routledge said. “I’d like to do what we can to cause them to choose to come into the system.”
He also acknowledged the cost of over-regulation. “We don’t want to have the stability of the graveyard, where everything’s safe, but nothing happens,” he said. “We want a financial system taking risks, helping Canada adapt to our new environment.”
Routledge said any changes regulators make would still be prudent. “We’ll be incremental, not revolutionary.”
On Thursday, OSFI added housing-market strains and tariff issues to its list of key risks facing financial institutions. Mortgage delinquency rates are close to pre-pandemic levels, it said, with Toronto an area of concern.
Routledge said things would need to get a lot worse for the risk to become unmanageable.
“You’d have to have a 10x increase in delinquencies today for Toronto, roughly, before it really posed a very significant threat,” he told reporters, citing diligent bank underwriting and requirements such as the mortgage stress test. “I still think for the vast majority of institutions, that would be an earnings hit, not a capital hit.”
As of the second quarter, 0.22% of mortgages nationally were past due by 90 days or more, with the Toronto area at 0.24%, according to data from Equifax Inc.
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Last modified: October 10, 2025
Extra Information:
OSFI’s Capital Adequacy Requirements – Explains current regulatory framework that may be adjusted for small-business lending.
StatsCan Banking Concentration Data – Provides empirical support for Rogers’ “oligopoly” claims.
People Also Ask About:
- What is Canada’s mortgage stress test? A regulatory requirement ensuring borrowers qualify at higher interest rates than their contracted rate.
- How do Canadian banks compare globally in competitiveness? Canada ranks 24th in World Bank’s banking competition metrics, behind most G7 peers.
- What percentage of Canadian mortgages are variable-rate? Approximately 32% as of Q2 2025, down from pandemic peaks.
- How often does OSFI update capital requirements? Typically annually, with emergency adjustments during crises like COVID-19.
Expert Opinion:
“Routledge’s stance marks a pivotal shift from Canada’s traditional risk-aversion culture,” notes banking analyst Susan Riddell. “By tolerating more institutional failures, OSFI could mirror the U.S.’s more dynamic fintech ecosystem—but must balance this with Canada’s prized financial stability reputation.”
Key Terms:
- Canadian banking sector competition reforms
- OSFI capital requirements small business loans
- Mortgage delinquency rates Toronto 2025
- Fintech regulatory sandbox Canada
- Banking oligopoly productivity impact
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