By Gordon Isfeld
OTTAWA (MaceNews) – Canada’s financial system continues to face “vulnerabilities” related to household debt and “imbalances” in the country’s residential markets, even as regulators continue to tighten guidelines in mortgage lending.
“New measures have curbed borrowing, reduced speculative behaviour in housing markets and made the financial system more resilient,” the Bank of Canada said in a statement on Thursday, as part of the monetary policymakers annual Financial System Review, published Thursday.
“While fundamentals in the housing sector remain solid overall, and the sector should return to growth later this year, we continue to monitor these vulnerabilities closely.”
Among other concerns are the global threat of cyber attacks on financial institutions, along with the uncertain impact of climate change on the economy and the “rapidly changing cryto-asset and fintech sectors.”
The central bank plans to continue keeping a close watch on financial risks – both domestically and in China, where economic stresses could be building.
“Global uncertainty is rising, and risks to financial stability have edged up in the past year. Still, confidence in the resilience of Canada’s financial system remains high, and we are seeing improvements in some of the key vulnerabilities we’ve been worried about for many years,” Bank of Canada Governor Stephen Poloz said in a statement Thursday.
Even so, the overall risk to the Canadian financial system “has increased slightly since our last assessment in June 2018,” the central bank said in its annual review.
“This increase (in risk) is due to a slowdown in economic growth, caused – in part – by global trade policy uncertainty, last year’s oil price decline, ongoing difficulties in the energy sector and expanded risk-taking in global financial markets.”
Those global concerns are rising and “risks to financial stability have edged up in the past years,” Governor Poloz said in the central bank`s Financial System Review.
“Still, confidence in the resilience of Canada’s financial system remains high, and we are seeing improvements in some of the key vulnerabilities we’ve been worried about for many years.”
Speaking to reporters following the release of the Financial System Review, Governor Poloz stressed other vulnerabilities facing Canada and the global economy – in particular, the escalating trade war between the United States and China, and what might happen to Canada`s financial system should China experience some form of shock to its economy due to trade disputes with the U.S.
“Certainly, as highlighted in our MPR (Monetary Policy Report), the escalation of the trade war was our primary, or our first, top risk to the outlook (for Canada’s economy). So, that remains the case today. And, of course, the situation evolves day by day,” Poloz said.
“In terms of the connection to financial stability risk, yes, the Chinese financial system has long been identified as a place where there were vulnerabilities (where) some sort of shock could produce reactions that had spillover effects on financial markets.”