Oliver and Flaherty: Divergence of style
In March of 2013, then finance minister Jim Flaherty did what few politicians would dare: privately and publicly scolding Canada’s commercial banks for engaging in a “race to the bottom” on mortgage rates to lock in new customers at a time when the housing market was already close to bubbling over.
At the same time, in what was also a highly unusual move, Flaherty called out the Bank of Montreal for taking the lead in that race.
Financial institutions quickly backed off — temporarily at least. What didn’t stop, however, was the relentless pressure from some of the world’s big institutional critics — such as the International Monetary Fund — for Ottawa to do more to tighten mortgage regulations in the real estate sector.
On Tuesday, the IMF issued yet another report urging Ottawa to tighten its reins on the financial system and spread more of the mortgage- lending risks among the private sector, citing new concerns over high house prices and huge consumer debt.
This renewed hectoring comes despite numerous moves taken by the Conservatives over the past few years to do to just — a fact the Flaherty was never shy of pointing out to his critics.
Joe Oliver, who became finance minister last year, has taken a more low- key, non- interventionist approach: saying little in response to these outside suggestions and maintaining the oversight of the market as it was when his predecessor left.
But the latest IMF report — and new cuts in prime lending rates, this time led by the Royal Bank of Canada following a January drop in the Bank of Canada’s trendsetting lending level, the first in 4 1/ 2 years — has thrown the issue into the lap of the current finance minister.
Oliver’s reaction on Tuesday was similar in tone and brevity to previous calls for further intervention. “We will take further action if appropriate,” he told the Financial Post. “However, we do not see the need for a major change at this time.”
But he added: “Our long- term ob- jective is to gradually reduce the government’s involvement in the residential mortgages.”
The contrast in styles is unmistakable.
Flaherty, who died shortly after leaving office, was a lawyer who honed his political style as a cabinet minister in the Ontario government. Oliver, who was the federal resources minister before moving to finance, comes from an investment banking and regulatory background.
“Flaherty spoke to bank CEOs all the time,” a former political staffer said. “I would think he had moral-suasion- type conversations with them on many occasions. And he also intervened in the market dramatically four times,” the former staffer said.
“He felt quite strongly that, as finance minister, he did have a fair bit of morale suasion at his disposal, that he could use. Much of the time that was done quietly behind closed doors. But it was effective.”
Douglas Porter, chief economist at BMO Capital Markets, said “there is definitely a different tone coming out of Ottawa than we would have seen about three years ago.”
“As time goes on, we do see an emerging style difference between Oliver and the former finance minister. And we also see a different stance and different commentary from the Bank of Canada governor [ Stephen Poloz] from the former governor [ Mark Carney],” he added.
“It’s interesting how the earlier leaders, or policy- makers, were both much more focused on the housing market and seemed much more concerned than the current two policy- makers. In a way, it’s strange, because if anything the market does seem to have got a bit more overheated — especially in Toronto and Vancouver.”