OSFI REQUEST BANKS PULL BACK ON OFFICE LENDING IMO The regulator confirmed that talks with the big banks are underway to ensure they have adequate collateral and margin agreements in place in their dealings with hedge funds and other investment companies that have large derivative contracts with the banks.
“OSFI has been engaged with banks in the early part of the year on this topic,” said Elizabeth Roach, a communications advisor for the regulator.
The concerns are thought to have risen higher on the regulator’s radar due, at least in part, to a perception of growing valuation risk in privately held commercial real estate, particularly the office segment where publicly traded assets have declined by as much as 50 per cent as remote work leaves buildings with vacancies. Meanwhile, lending outside OSFI’s purview and without its checks and balances in the form of adequate capital against the risk is also understood to be a concern.
Commercial real estate is considered a hot spot for such vulnerabilities these days because there can be a lag effect. Assets such as office, apartment and retail towers tend to get appraised annually rather than “marked to market” daily, meaning there could be a sudden, large margin call if the value is written down steeply.