Canadian Finance Minister Jim Flaherty says it’s up to commercial banks — not government — to rein in lending as household debt soars, countering comments by Toronto-Dominion Bank Chief Executive Officer Edmund Clark.

“The primary responsibility for prudence in lending practices rests with the financial institutions,” Flaherty said in a Dec. 21 interview in Ottawa. “People also need to take responsibility for what they do and exercise common sense in terms of taking on debt.”

Clark said in a Globe and Mail interview published Dec. 16 that cutting Canada’s excessive household debt is a matter for the government rather than lenders, and would be best tackled through tighter rules on mortgages. No bank wants to lead the way in imposing stricter borrowing conditions for fear of losing customers to rivals, Clark, 63, told the newspaper.

Mohammed Nakhooda, a Toronto-Dominion spokesman, declined to comment yesterday.

“Banks are responsible for their own business practices and what I find odd from time to time is when a bank executive asks me to tighten lending rules,” Flaherty said. “It seems to me that’s the primary responsibility of the financial institutions and not the government.”

Household debt has risen in Canada after interest rates fell close to record lows, prompting consumers to take on bigger mortgages, car loans and credit-card balances. Canada’s debt levels topped the U.S. for the first time in 12 years in the third quarter.

Mortgage Rates

Flaherty, 60, said he expects interest rates to “go up over time,” which will bring higher mortgage costs.

“People have to make sure they can afford, in particular, their mortgage payments when interest rates rise,” Flaherty said.

The government would tighten mortgage-market rules again if it had to, Flaherty said. Measures to restrain lending taken earlier this year included changes for government-backed mortgages that forced buyers to meet standards for five-year, fixed-rate mortgages even if they opt for variable rates. Limits on refinancing were made stricter and down payment rules were tightened.