B8 G THE GLOBE AND MAIL | WEDNESDAY, MAY 21, 2025 GLOBE INVESTOR | REPORT ON BUSINESS N early half of all bank lend- ing in Canada is tied to resi- dential mortgages – an asset class that offers financial in- stitutions both security and sta- ble returns. Banks earn an average return of about 1.5 per cent on the mon- ey they lend right now. Among all loan types, residential mortgages – backed by home collateral, mortgage default insurance and a historically stable housing mar- ket – are considered among the lowest-risk lending options. This has made the mortgage market one of the most compet- itive arenas in Canadian banking. ORIGINATION VS. OWNERSHIP Mortgage market share can be viewed through two lenses: orig- ination and ownership. Mortgage finance companies such as First National and MCAP collectively originate close to 10 per cent of residential mortgages in Canada. However, they rarely retain these loans on their balance sheets. Instead, they securitize or sell them, often to other institu- tions such as the “Big Six” banks – Royal Bank of Canada, Toronto- Dominion, Bank of Nova Scotia, Bank of Montreal, Canadian Im- perial Bank of Commerce and Na- tional Bank. As a result, the ownership share of the six biggest banks is considerably larger than their share of originations. A $2.4-TRILLION MARKET As of January, outstanding resi- dential mortgage credit totalled approximately $2.07-trillion, with more than $350-billion in additional home equity lines of credit. That brings the total resi- dential real estate-secured lend- ing in Canada to $2.42-trillion. While traditional mortgages dominate, home equity lines of credit have gained popularity, especially among homeowners who’ve benefited from signifi- cant home price appreciation over the past decade. These flex- ible, home-secured credit lines lack fixed amortization sched- ules and are used to tap into home equity. THE BIG SIX AND DESJARDINS The mortgage market is highly concentrated. The Royal Bank of Canada leads all lenders with a 19.8-per-cent share of real estate- secured loans. Combined, the six biggest banks control around 74 per cent of the market. Including Desjardins, the largest credit union, raises the total to 80 per cent. The remaining 20 per cent is shared among more than 20 smaller banks, hundreds of credit unions, mortgage finance com- panies, insurance and trust com- panies and mortgage investment entities. Many of these smaller players try to stay competitive by offer- ing lower mortgage rates, often through brokers, or by serving niche borrowers with non- traditional income or credit pro- files. Yet their market share has declined. In January, 2015, non- big seven lenders held 21.5 per cent of the market. By 2025, that figure sat at 20 per cent. The trend highlights the struc- tural headwinds facing smaller institutions: limited brand recog- nition, restricted distribution channels, and the massive scale and customer loyalty command- ed by the dominant players con- tinue to make market share gains elusive. Total real estate loans as of Jan. 31 In billions of dollars The amounts are as of Dec. 31, 2024 THE GLOBE AND MAIL, SOURCE: QUARTERLY AND ANNUAL FINANCIAL REPORTS OF THE LENDERS; CMHC; STATISTICS CANADA $480.4 $397.1 $326.7 $288.1 $210.0 $138.7 $96.0 $31.2 $24.1 $21.5 $409.6 TOTAL REAL ESTATE LOANS 19.8% 16.4% 13.5% 11.9% 8.7% 5.7% 4.0% 1.3% 1.0% 0.9% 16.9% MARKET SHARE $37.2 HELOCs $124.2 $23.1 $19.4 $49.9 $6.4 $29.3 $2.2 $1.8 $443.3 $272.8 $303.7 $268.7 $160.1 $132.3 $66.8 $29.0 $19.7 MORTGAGES RBC TD Scotiabank CIBC BMO Desjardins Caisses National Bank EQ Manulife* ATB* Others LENDER While traditional mortgages dominate in Canada, home equity lines of credit have gained popularity, especially among homeowners who benefited from price appreciation in the past decade. FRED LUM/THE GLOBE AND MAIL In mortgages, it’s Big Banks against everyone else The market in Canada is highly concentrated and the share of smaller players is shrinking HANIF BAYAT ANALYSIS PhD, CEO and founder of WOWA.ca, a Canadian personal finance platform T rade-related uncertainties, ballooning fiscal debt and weakened confidence about enduring U.S. ex- ceptionalism have weighed on U.S. assets, with the dollar one casualty. Investors see the currency losing more of its lustre as the greenback comes back to earth from lofty valuations. The Trump administration’s tariffs salvo this year prompt- ed investors to cut exposure to U.S. assets after a long period of overperformance. While the U.S. currency steadied some- what in recent sessions as investors took heart from a truce in the continuing U.S.-China trade war, it came under renewed selling pressure after ratings agency Moody’s cut the United States’ pristine sovereign credit rating by one notch. “There’s plenty of room for further depreciation, purely from a valuation perspective,” said George Vessey, lead FX and macro strategist at payments firm Convera. The “sell America” trade was back in focus after Moody’s U.S. credit downgrade, he said. The U.S. Dollar Index has tumbled as much as 10.6 per cent from its January highs, one of the sharpest retreats for a three-month period, leaving speculators net short the dollar to the tune of US$17.32-billion, close to the most bearish posi- tion on the buck since July, 2023, according to Commodity Futures Trading Commission data. Part of the bearishness around the dollar has been owing to the currency trading at a relatively rich valuation – in Janu- ary trading as high as 22 per cent above its 20-year average of 90.1 on the Dollar Index. Currently, the index is hovering about 10 per cent above its 20-year average level. There is room for it to weaken significantly further, for example another 10-per-cent slide would take it to the lows touched during U.S. President Donald Trump’s first term. Investors and strategists have viewed the dollar as overval- ued for years but betting against the currency has proved painful time and again, as the U.S. economy powered on. That could be about to change. Steve Englander, head of global G10 FX Research at Stan- dard Chartered in New York, said that while recent trade arrangements might calm markets some, they do not address long-term confidence issues facing the U.S. “The dollar weakness story is not over,” Mr. Englander said. Investors are also concerned about the long-term fiscal picture for the United States. Analysts say Mr. Trump’s sweep- ing tax-cut bill would add US$3-trillion to US$5-trillion to the nation’s US$36.2-trillion in debt over the next decade. “The combination of diminished appetite to buy U.S. assets and the rigidity of a U.S. fiscal process that locks in very high deficits is what is making the market very nervous,” George Saravelos, global head of FX research at Deutsche Bank, said in a note. The Trump administration has said it backs a strong-dollar policy. “President Trump has been unequivocally clear about maintaining the strength and power of the U.S. dollar as the world’s reserve currency,” White House spokesperson Kush Desai said. Despite recent foreign selling, years of U.S. asset apprecia- tion mean the world still holds trillions in U.S. equities and Treasuries. Such selling pressure could come from various corners of the globe as more people zero in on the dollar’s recent failure to act as a haven, investors said. “That’s really what gave people a jolt … and say ‘Well, if the dollar is no longer acting as a safe-haven currency, if it’s not diversifying us any longer, should we really be holding this much of it?’ ” said Peter Vassallo, FX portfolio manager at BNP Paribas Asset Management. Colin Graham, head of multiasset strategies at Robeco in London, however, said that while there had been a rebalanc- ing of portfolios where people wanted to cut risk, “it hasn’t turned into people selling dollars, assets or equities or Trea- suries to repatriate yet.” That could still follow, he said. The dollar’s strength over the last decade had let market participants hold U.S. assets without worrying too much about currency risk. With foreign holdings of U.S. assets in trillions of dollars, per estimates from banks, including Deutsche Bank, even a modest rise in hedge ratios – the portion of foreign currency exposure that is protected – could spell significant selling. Increased hedging by investors means less direct demand for the dollar and more dollar selling pressure in the forward markets. REUTERS SAQIB IQBAL AHMED LAURA MATTHEWS NEW YORK Investors predict more trouble for the U.S. dollar A s we’re being encouraged to turn inward and buy more Canadian goods and services, why not allow Cana- dians to buy more of something that’s manufactured in Canada, is envied around the world, and supports many Canadians al- ready: the Canada Pension Plan (CPP). The national pension program sees Canadians contribute ap- proximately 6 per cent of their wages over their working life in exchange for a pension annuity of approximately 30 per cent of their best year’s wages when they retire. This is an idealized de- scription of a rather complicated plan (all those government actu- aries need employment). Em- ployers also have to contribute their own 6 per cent to the pot. But the end result is that when Canadians retire, they gain a real inflation-adjusted life annuity economist Adam Smith may be turning in his Edinburgh grave at the suggestion that the govern- ment should get involved in yet another business that has been the domain of insurance compa- nies for centuries. But most Canadian insurance companies haven’t shown much interest in designing or market- ing true longevity annuities. This absence is for a variety of supply and demand reasons Mr. Smith would recognize, but is a type of market failure. This proposal is more likely to threaten invest- ment fund manufacturers who would rather retirees ride the stock market roller coaster. Another concern is that if the actuaries haven’t learned to price the “income units” correctly, it could ruin the viability of the CPP. But then again, market dis- cipline isn’t a bad idea. In sum, allowing Canadians to purchase more CPP benefits when they retire would boost retirement income at a time when fewer retirees benefit from workplace pensions. We could even allow our American neigh- bours to buy some, which would help them diversify their own retirement portfolio – subject to a small fee or tariff, of course. and psychological benefits to making these “income units” available. As some Canadians buy more CPP, it will signal to those who take their benefits too early that they’re making a finan- cial mistake. After all, if some people are buying more of this good deal, then why are you sell- ing? Second, and more important- ly, buying these income units will offer Canadians a genuine way to guarantee a lifetime of inflation- adjusted income that isn’t sub- ject to the vagaries of the stock market. They will use their TFSAs to purchase what is effectively longevity insurance against liv- ing longer than expected. Third, it will give everybody a true sense of what their CPP ben- efits are worth in present value terms. Multiply your benefit by the price of the “income unit” and, voila, you will see that you are truly richer than you thought. For example, if someone is told that (A) waiting until age 70 to collect their CPP will generate $2,000 a month, and (B) they can purchase three-score-and-ten “income units” at a price of $10, then the market value of their pension is 12 x A x B, or $240,000. Now, the great free-market units” of the CPP that would only spring to life when they’re 70 years old. For example, the CPP might announce on Jan. 1 that “income units” could be purchased for $10 each, entitling the holder to $1 of annual inflation-adjusted in- come for life starting at age 70. Someone who wanted to supple- ment their CPP pension by $1,200 a year, or $100 a month, would have to pay the CPP $12,000. For someone who want- ed $200 more a month, it would cost $24,000. The CPP actuaries would waive their magic models and update the price of the income units periodically to ensure they’re financially fair to every- one, but the deferred income would always begin at 70. Those still working could also purchase the income units. To make this as simple as pos- sible for tax-filing, the units could only be purchased in a tax- free savings account (TFSA), placing a limit on the total amount, but the extra income would be tax-free and wouldn’t result in the clawback of a reti- ree’s precious Old Age Security benefits. There are additional economic that pays an income for as long as they live. Money from CPP is on autopilot, without having to worry about decumulation at an advanced age. The design, management and governance of the CPP have been lauded by pension observers around the world. When Britain’s Chancellor of the Exchequer Ra- chel Reeves visited Canada last year, she made a point to chat with the managers of our largest pension plans, including the CPP. The CPP is so good that those who hold off until the biblical “three-score-and-ten” (i.e., age 70) to start their benefits see their annuity increase by approx- imately 40 per cent; instead of $1,000 a month at age 65, they would get around $1,400 month- ly if they wait until they turn 70. And yet, here’s the annuity puzzle: Very few Canadians wait until 70 to claim their benefits, despite many financial experts advocating for this exact strategy. So, how do we get more Cana- dians to wait? Perhaps, counter- intuitively, we should allow them to buy more. Here’s how this would work: Starting at the age of 60, any Can- adian could voluntarily purchase three-score-and-ten “income When buying Canadian, how about some more CPP benefits? MOSHE A. MILEVSKY OPINION CIT chair in financial services and professor of finance at York University’s Schulich School of Business in Toronto