Royal Bank of Canada Notes for the Year of 2012, Discusses the Impact Fund and the Canadian Banking Industry Currently Today

RBC

Problems right now

The fact that Canadian lenders are loosening standards on mortgages that are similar to U.S. subprime loans, so basically it’s becoming more liberal with mortgages and home-equity credit lines that don’t require individuals to prove their income

Mortgages granted to self-employed and recent immigrants, these have non-income qualified lending

David Madani (Economist) Canadian housing prices may fall by 25 per cent over the next few years, this easing in lending standard is what boosted the housing market and is what is causing these prices to fall

Canada’s housing market surged in 2009 recession, because mortgage rates were so low so this fuelled home purchases

Governor Mark Carney (Bank of Canada) consumer debts are the greatest domestic threat to the country’s financial institutions

Housing market is in the classic signs of a bubble with prices increasing, high ownership rates and overbuilding

The bank is saying that Canadian households would be highly vulnerable to an economic shock with a debt service ratio of 40 percent or more

Canadian debt reached 153 per cent of disposable income in the third quarter

Mortgages in Canada are funded by deposits and mortgage-backed securities and bonds guaranteed by the CMHC

Banks are also cutting their funding costs by selling covered bonds, a form of corporate bond backed by assets such as home loans.

Royal Bank of Canada (RY-T52.430.100.19%) has decided to establish its own impact fund, in what appears to be the first major move by a Canadian financial institution in this space.

Impact or social finance is essentially finance with a social or environmental goal. In some instances investors in this space are willing to accept a slightly lower financial return in exchange for social or environmental benefits (though, some financial instruments in this space can actually outperform other alternatives).

credit: yahoo news