Toronto rents have decreased 9.5%...
It's a fair point, but once the capital is held by a bank they will loan the money based on the risk profile. Everything I am hearing is that if real estate prices fall in an environment of low rates, the reason will be that banks are unwilling to loan to questionable borrowers. There will be less financially secure borrowers, and at the same time, they will tighten up as they will look at their borrowers, who perhaps have had a job for a year and understand that if they lose their job they might not as easily find another one. Home Equity Line of Credits (HELOCS) have largely been cut, which would be something that would drive renovations and consumer spending.The Basel Committee, which sets rules for the world's banking system, stated banks held extra capital for two purposes — ensuring they could withstand losses and supporting economies through downturns.
"Using capital resources to support the real economy and absorb losses should take priority at present," the committee said, adding that supervisors would provide banks with "sufficient time" to rebuild buffers "taking account of economic and market conditions and individual bank circumstances".
Banks should use their capital to "support the real economy and absorb losses" rather than hoarding it.