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As a result of the flood of money pouring from Mainland China into Vancouver real estate in recent years, some financial experts say they believe Canadian banks are directly exposed to shadow lending in China and the risks of so-called “ghost collateral” — meaning collateral that may not exist or is used continuously to secure loans for multiple borrowers.

Postmedia confirmed that Canadian banks are allowed by the federal regulator, the Office of the Superintendent of Financial Institutions, to accept collateral from China to secure real estate mortgages in B.C.

“OSFI does not dictate what type of collateral (federally regulated banks) can accept,” spokeswoman Annik Faucher said. “Whether the borrower is foreign or domestic, OSFI (allows) financial institutions to compete effectively and take reasonable risks.”

One U.S. hedge fund manager, who did not want to be identified, said: “We all know that the ghost collateral is a huge deal, and we all know that the shadow banking and other Chinese influence in Vancouver is profound. The issue is that the ghost collateral ends up re-hypothecated and laundered. So by the time it shows up in Vancouver, it will likely just look like a rich Chinese cash buyer with a suitcase of money.”

RISKY LOANS SPREAD

The spread of high risk loans in Metro Vancouver can be seen in Bank of Canada maps that show where new “high-ratio” loans — meaning the buyer makes less than a 20 per cent down payment on a home purchase and borrows the rest — have been issued. If the value of the loan is 450 per cent of annual income or more, the borrower is considered particularly vulnerable. The Bank of Canada will not reveal the number of high-ratio loans issued in Metro Vancouver, but says they are concerned with the rapid growth in these loans. In 2014, across Metro Vancouver, 31 per cent of new high-ratio mortgages were at least 450 per cent of the borrower’s income. In the second half of 2015, this figure rose to 37 per cent. By late 2016, it was 39 per cent.