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 Royal Bank of Canada , Canada's biggest bank, said it was closely monitoring home prices in Vancouver and Toronto after reporting slightly higher-than-expected quarterly earnings on Wednesday.

Canada's banks are facing heightened scrutiny of their mortgage underwriting practices as authorities try to tackle the potential threat of a housing bubble in the two cities, where prices have soared.

RBC Chief Executive Officer Dave McKay said the bank was watching those markets, although it has less exposure to Vancouver than rivals.

"We have prudent underwriting practices in place, with the necessary technology to closely monitor these markets and quickly react if situations materialize," McKay said.

He added that the bank supported the federal government's move to set up a working group to look at the issue.

Canada's banking regulator raised concerns about mortgage underwriting standards across the industry in July and ordered smaller lenders to check their ability to withstand steep falls in prices.

In the same month, British Columbia introduced a new 15 percent tax on foreign real estate buyers in July in an effort to cool Vancouver's red hot market.

"I think if it does what's intended we would view that as favorable but the jury is out on that," Chief Financial Officer Janice Fukakusa said in an interview.

Source: Reuters