Canada’s top banking watchdog, the Office of the Superintendent of Financial Institutions (OSFI), has sent a strong signal to the country’s biggest banks: it’s time to rebalance away from heavy mortgage exposure and lend more to businesses. By revisiting capital and liquidity rules, OSFI says banks could unlock up to CAD 1 trillion in new commercial lending capacity — a potential game-changer for the Canadian economy.

Why OSFI Is Shifting Focus

For years, Canadian banks have been heavily concentrated in the residential mortgage market, which represents a large portion of their balance sheets. This made sense when housing demand was booming and mortgage lending was highly profitable. But with slowing population growth, higher vacancies in real estate, and rate volatility, OSFI now wants banks to take “smarter” risks that balance their portfolios.

According to OSFI, the economy needs more capital flowing into business loans, commercial real estate projects, infrastructure, and innovation financing, rather than simply piling into mortgages.

Unlocking $1 Trillion in Capacity

OSFI estimates that through capital requirement adjustments and liquidity reforms, banks could potentially redirect over $1 trillion toward business and commercial sectors.

This isn’t about forcing banks to lend recklessly — OSFI emphasized “smart” risks, meaning calculated lending where businesses can realistically repay. The regulator wants to encourage risk diversification so banks are not overly reliant on mortgage profits, which could become less stable if housing prices soften further.

What It Means for Mortgage Borrowers

For Canadian homeowners, this doesn’t mean mortgages are going away. But it does mean banks may:

Tighten mortgage criteria slightly: With less incentive to load up on mortgages, some lenders may become pickier on approvals.
Shift competitive pricing: If banks chase business loans more aggressively, mortgage discounting could narrow.
Diversify lending offers: Expect banks to market more small business loans, credit facilities, and commercial financing alongside mortgages.

In other words, the balance of power might shift slightly in the mortgage market, with borrowers needing to shop around more carefully.

OSFI’s Bigger Picture

Peter Routledge, Superintendent of Financial Institutions, has stressed that Canada’s economy needs “productive risk-taking.” He argues that while housing demand remains significant, an over-concentration on mortgages poses systemic risks. If the housing market stalls or defaults rise, banks overly dependent on mortgages could face pressure.

By contrast, a stronger base of commercial and business lending spreads the risk across sectors and helps support broader economic growth.

Expert Take

Economists say this could be a long-term stabilizing force for Canada’s financial system. However, mortgage industry experts caution that any regulatory tweaks could indirectly affect borrowing costs for homeowners. If banks allocate more capital elsewhere, mortgage growth may slow — possibly cooling housing demand further.

Still, for first-time buyers already struggling with high home prices and stress-test rules, a slightly cooler mortgage market might provide more balance.

Why It Matters for You

If you’re renewing soon: Don’t expect immediate changes, but keep an eye on whether your bank adjusts lending strategies.
If you’re a business owner: Access to capital could become easier as banks push new lending products.
If you’re a homebuyer: Mortgage rates remain tied to broader market conditions (BoC policy + bond yields), but competition between banks may shift.

OSFI’s push isn’t about making mortgages harder, but about diversifying Canada’s banking system. Homebuyers and mortgage holders should watch carefully — as any reallocation of bank capital could trickle down to how lenders price and approve mortgages.