CHRISTOPHER SEAN BATT - 

RBC formally warned by banking regulator (OSFI) to stop breaking LTV rules. 

In a move to prevent the pre-construction condo market from cratering, The Royal Bank of Canada has been approving illegal (uninsured) Loan-ToValue (LTV) ratios above 80%, rather than denying mortgages and being hammered with underwater properties on their books – for two years, without any regulatory action or penalties. 

The Office of the Superintendent of Financial Institutions (OSFI) has warned RBC and other major Canadian banks over its false (pre-construction) appraisals or outdated values, rather than ones based on the current housing market realities. These practices probably extend to other types of properties in the broader market, as well. 

OSFI raised concerns in an October 2025 meeting with major bank executives that bypassing the federal 80% LTV rule to justify mortgage approvals is an offense under Canadian law.

RBC, Canada’s largest bank, has been using original purchase prices from market peaks years ago or closing date blanket appraisals (pre-calculated values applied to all units in a development). This allows approvals, reminiscent of 2008, for borrowers and projects underwritten by the bank, that should not be approved. The legal alternative is letting market realities correct the problem, to protect the lenders and borrowers from bad loans. But the mortgage industry would severely contract, be left holding defaults, and cause development project cancellations (and lawsuits) that the lenders themselves (the same banks) funded in the first place.

More than just devastating their balance sheets, the banks are faced with admitting the systemic fractures in the housing market caused by the non-admitted cratering of property values and failing consumer sentiment (and institutional trust), even amidst sustained inflation levels since 2020.

The graphs are going in the absolute wrong direction, threatening the narrative that there is no recession. Real Estate inventory in Toronto, for evidence, is at 5.0 months, a level not seen since 2014, and sales numbers are down 20% from February last year. The numbers don’t lie, and the illusion is still benefitting from a mortgage approval benchmark that should be much lower and safer.

Growing regulatory scrutiny highlights systemic risks, now the narrative is forced to shift. We saw another stop-gap measure in recent years, where Canadians’ inability to qualify for mortgages was plastered-over by extending amortization terms (through B-lenders) to 35+ years.

If reality is not permitted to land, allowing a correction in the mortgage marketplace, to reflect the real state of the economy and property investment ratings, we will face 2008 again, but worse. Equity markets are only propped up by the AI technology bubble this time, so the downside risk is far more dangerous, yet completely unacknowledged by mainstream ‘news’ and so-called ‘economists’.

Canadian bailouts of the banking and Bay Street industries, who are too big to fail (read ‘admit the truth’) will be devastating to our currency and our global credit ratings in the financial system. The United States and Canada are already in too deep – neither raising nor lowering interest rates or issuing massive amounts of new sovereign debt will provide a soft landing.

So, a hard landing it will be.

Canada’s reputation is not as solid as we hope to imagine on the world financial stage. Our sovereign gold bullion holdings remain at zero. According to the International Monetary Fund (IMF) and the World Bank, our word and our bond amount to nothing. China and Russia are amassing thousands of tons of new physical gold holdings, while the United States has reduced its claimed (but still never audited) holdings. Japan is loudly divesting of lossy US Treasury Bonds, as western nations face debt spiral economics, which are cold, hard mathematics.

If Canadians ignore the facts, insisting on cheating along with the banks, just to ‘invest’ in a failing market sector that could experience a ‘lost decade’ going forward from the peak in 2022, they will surrender their nest eggs and purchasing power for the next generation, led by blindness. The middle class is now experiencing the largest wealth transfer in Canadian history.

Canadians who are thinking critically are making a major shift to commodities and inflation-hedged precious metals, industrial resources, and growth sectors of our economy that shine light through to the end of the tunnel. With those gains in the next few years, savvy investors will swoop in and buy up the deflated property assets at the perfect moments, benefitting from asset-strong portfolios, and the ability to leverage devalued dollars (USD and CAD).

Wise investors would rather not be slaves to the debt-dependent economics our banks continue to propagate, and the illusions they peddle through fraudulent logic and illegal practices.

Relying on calming by pundits and tunnel vision won’t get you there. Coast down the stream at your own peril.

– Chris ;-)