Canadian Bail-in Regime Update

Canadian Mortgage Market Default Insurance Favourable Legal Environment Taxation Beneficial Mortgage Regulation in Canada • Under the Bank Act, banks can only advance uninsured mortgages up to an LTV ratio of 80% • Borrowers have to purchase default insurance if the mortgage has an LTV > 80% • Insurance covers the entire outstanding principal amount, up to 12 months accrued interest and, subject to certain caps, any out-of-pocket costs incurred by the lender (e.g. foreclosure expenses, legal fees, maintenance costs, property insurance, etc.) • Mortgage default insurance is provided by CMHC and private mortgage insurers (Sagen, Canada Guaranty) • In most provinces, lenders have robust legal recourse to recoup losses (e.g. garnishing wages) Mortgage interest is generally not tax deductible, which results in an incentive for mortgagors to limit their amount of mortgage debt CIBC◇ This combination of factors results in consistently low credit losses on the Canadian banks' mortgage books 46 46

View entire presentation