Bank of Canada says financial system remains resilient amid global uncertainty | FULL

Hinzugefügt: 2026-05-28

[00:00:00]investor confidence and lead to a spike in demand for liquidity or too rapid asset sales.

[00:00:06]Funding markets could come under pressure and stress could spread more broadly.

[00:00:12]To be clear, the FSR is not about what we expect will happen. It's an assessment of how existing vulnerabilities or pockets of stress could amplify shocks and ultimately spread across the financial system.

[00:00:28]At the time of the 2025 report, we were concerned that tariffs and trade uncertainty could lead to market volatility, strains on liquidity, or even market dysfunction.

[00:00:39]So far, the impacts have been less widespread than we originally feared.

[00:00:45]But of course, the risk hasn't gone away and the future of Canada's trade relationship with the United States remains uncertain.

[00:00:56]More recently, the war in the Middle East has added to global uncertainty, leading to volatility in some markets and also a short period of reduced liquidity.

[00:01:12]Markets have continued to function well.

[00:01:16]But it remains unclear how long the war will last or how it might be resolved.

[00:01:22]New risks are also emerging, particularly from artificial intelligence.

[00:01:27]AI is expected to boost productivity and economic growth over time, but it's sparking concerns about disruptions in some sectors and about over-investment.

[00:01:37]AI may also increase the speed, scale, and sophistication of cyber attacks.

[00:01:44]Now, let me turn to Deputy Governor Gravelle to talk about the conditions in each of the five sectors that we monitor.

[00:01:51]>> Thank you, Senior Deputy Governor.

[00:01:53]I'll start with households, where the overall picture is similar to last year.

[00:01:58]Canadians Can continue to carry high levels of debt relative to their income, but overall household wealth has risen.

[00:02:08]And the share of borrowers who are behind on debt payments has stabilized.

[00:02:13]In recent years, we've highlighted the risk of payment shocks when households renew pandemic era mortgages.

[00:02:19]To date, most borrowers have managed this risk well.

[00:02:24]With the final wave of these renewals set up set to happen over the next 12 months, we expect this risk to have fully passed by the second half of 2027.

[00:02:35]I'd like to stress that this overall picture masks important differences.

[00:02:39]Some households face far greater strain than others, and those with the highest debt burden have very little financial flexibility to cope with a job loss or an unexpected expense.

[00:02:53]>> Not view dans un cas c'est un cas important.

[00:02:57]Certains ménages vivent des pressions beaucoup plus fortes que d'autres.

[00:03:00]>> The overall picture >> Les plus endettés >> masks important differences. Some households face far greater strain than others, and those with the highest La santé financière des entreprises est généralement stable, mais dans les secteurs les plus exposés >> Business financial health is better >> dans la politique commerciale américaine, mais un ralentissement économique pourrait faire des pressions sur les marges et rendre plus difficile d'emprunter.

[00:03:29]>> The main concern for both households and businesses is a geopolitical or economic shock that leads to a deep recession and a sharp rise in unemployment.

[00:03:39]Canada's large banks have become more resilient over the past year with higher profitability and healthy capital buffers.

[00:03:48]They have also set aside additional funds to absorb potential loan losses.

[00:03:54]This positions them to support the economy and financial system even in in a severe downturn.

[00:04:07]>> vulnerability associated loan growth continue to grow hedge funds and we actually have to finance their purchases of government securities but source of fragility of fragility I'll leave it with financial markets.

[00:04:31]recent have been resilient Our financial markets have generally proven Canadian the Canadian financial system remains well positioned to weather shocks.

[00:04:48]It has been It has faced make no Those episodes did broader based financial stress the Canadian financial system remains well positioned to weather shocks.

[00:05:03]Over the past year, it has faced repeated tests.

[00:05:07]While there have been some strains, these episodes did not lead to broader based financial stress.

[00:05:15]Still, we must stay vigilant.

[00:05:18]We will continue to monitor our vulnerabilities closely and remain in regular contact with financial system participants and with domestic and international partners.

[00:05:29]A stable and finance a stable and resilient financial system absorbs shocks rather than amplifying them.

[00:05:36]And that benefits every Canadian.

[00:05:38]With that, the Senior Deputy Governor and I would be happy to take your questions.

[00:05:44]>> Thank you, Senior Deputy Governor and Deputy Governor. We will go to questions now. We'll start with the reporters here in Ottawa at the bank, and then we will go to those at our regional offices.

[00:05:54]As a reminder to everybody, today's topic is the Financial Stability Report.

[00:05:57]We will be back here in a couple weeks time for an interest rate announcement, at which point we will be happy to talk about monetary policy.

[00:06:03]We have time to get to everybody if we can just limit ourselves to one question each, so that everybody has a chance to participate. And if I forget to do so, please state your name and affiliation.

[00:06:15]For those in the room, just press that button on the microphone in front of you to activate it, so everyone can hear your question, then press it again to turn it off once you are done.

[00:06:26]>> Please identify yourself before you ask your question. And of course, you are free to ask your question in either language.

[00:06:32]>> first question here in Ottawa, and I'm going to call on Greg Quinn from Market News, please.

[00:06:39]>> Good morning. I'm sorry for the present circumstances.

[00:06:42]The report touches on the rise in bond yields, and the high premium that investors are are demanding to cover kind of fiscal policy risks, and and how that could create a financial stability problem. I was just wondering if that rise in bond yields and the potential volatility makes monetary policy more complicated in the current moment.

[00:07:09]>> Well, maybe let me talk about how we view sovereign bond risk from a financial stability perspective. Greg, really, we we think about uh um the the reason sovereign the bond market is really important to financial stability really comes down to two things.

[00:07:26]One is it's a it's a reference market.

[00:07:30]It's a Sovereign bonds provide a risk-free rate, and all other debt is priced off that market. So, any instability in that market is going to feed through to other markets.

[00:07:42]The other reason we really focus on the sovereign bond market is it's core to our funding markets. It's the primary source of collateral in the repo markets. It's the primary source of regulatory liquidity for the banks.

[00:07:55]So, it's really critical to the markets that fund other markets. So, any disruption in the sovereign bond market, whatever the source of that disruption, has the potential to feed through to other parts of the financial system. So, that's really the lens through which we look at at the sovereign bond market in the context of the financial stability report.

[00:08:19]>> Okay, next I'm going to go to Prabhat Mukherjee from Thomson Reuters, please.

[00:08:25]>> Governor, among the risks highlighted in the financial stability report, which ones do you think are a matter of when they will happen than if they will happen? For example, stock market valuations, perhaps.

[00:08:40]>> I mean, I think we we There's there's potential for any of them to happen. Really, what the what the financial stability report focuses on is the potential for more than one of them to to crystallize at once. So, you know, valuations have been high for quite a long time.

[00:09:00]Um some of that is fundamentals. Some of that is uh exuberance.

[00:09:06]Um So, whether or not those are going to crystallize at any given time is is really less of the less what we spend our time thinking about than what would happen if it did. And particularly, what would happen if it did in uh in concurrence with other risks um crystallizing at the same time. And what are the transmission mechanisms for those risks to spread more broadly and into things like the core funding market that have the potential to to manifest into more financial instability.

[00:09:38]All right, next I'm going to go to Craig Lord from The Canadian Press, please.

[00:09:44]>> Good morning, governors. Thank you for taking our questions.

[00:09:47]Um why is the the mortgage renewal wave that we spent a few years um worrying about it cresting and and hitting household finances? Why has that not appeared to put that that feared level of stress on households?

[00:10:05]>> Well, I think there's a number of reasons, Craig. I mean, I would start with households have been prudent. I mean, I think we we saw this wave coming. They saw it coming, too.

[00:10:16]They saved.

[00:10:18]They also some households have seen wage increases that that helped absorb the payment shock. Uh rates did come down, too. So, at one point we were forecasting what the maximum payment shock would look like, but as rates came down, that shock got smaller. At the same time, we saw wage gains and savings offset that shock.

[00:10:39]Uh mortgage holders were also able to take advantage of some flexibility, so they could re-amortize their mortgage, particularly if the value of their home has gone up and they had a little bit more equity. So, there was a whole bunch of factors, I think, that fed into that risk sort of gradually declining over time rather than than increasing or playing out the way we we were concerned it would.

[00:11:04]>> Okay, I'll go to Nijat Almalis from Bloomberg, please.

[00:11:09]>> Um good morning. I was wondering if you if you could talk a little bit about uh how risks to financial stability have evolved compared to last year. Are they worse? Not worse?

[00:11:21]>> Um well, I mean, Tony kind of went through each of the markets. I think in general, we would probably use the word uh stable.

[00:11:33]Particularly in households and businesses, we we've seen the risk sort of stabilize. I think in the if there's one area where we see a little bit more risk, it's in the the the hedge fund participation in the sovereign bond market. There there continues to be high levels of leverage and that with the backdrop of a more volatile geopolitical environment makes it more likely that that that trigger event could happen and and disrupt those markets.

[00:12:11]>> All right, I'll call on McKenzie Gray from Global, please.

[00:12:15]>> On the mortgage renewal side at the last interest rate announcement we heard the possibility of there being consecutive increases. It seems like we missed the worst of what had been kind of projected in terms of the renewal situation. If we get into the scenario that you guys laid out before where there could be multiple increases, how much of a risk do you view that to the housing market?

[00:12:37]>> Well, I mean I think you could take some comfort in the fact that houses have absorbed that payment shock over the last few years.

[00:12:47]We do have regulatory measures in place that help buffer households. So the the minimum qualifying rate, the stress test on mortgages does test households against higher a higher interest rate than the contract rate and that has proven a really valuable measure over the last few years. So that that measure stays in place, that would help. Uh but I mean this is something we'll have to continue to watch.

[00:13:16]>> Okay, and our final question here in Ottawa is from Paul Vieira from Wall Street Journal.

[00:13:24]>> Good morning.

[00:13:25]A report from this week indicated insolvencies in Canada reached their highest level since 2009, prompting the leader of Canada's Conservative Party to claim that there is a bankruptcy crisis in Canada. Yet, the Financial Stability Report indicates that household finances are relatively stable.

[00:13:46]Um, how do you square this circle? How do you make sense of these con- competing views of the um house- state of household finances?

[00:13:57]>> Well, I'm I mean, I can speak to the data that we used, Paul. Um, but I'd maybe make a few points here. I think we have um for for quite a long time now, the Bank of Canada has pointed at at household and and overall debt levels as as a vulnerability. I think if you were to go back even before the pandemic, probably 10 years, you would find um you would find this point in our previous Financial Stability Reports. So, it's not a new phenomenon.

[00:14:27]Um, I think in recent years uh through the pandemic uh at a household level at least, we saw the the ratios actually improve a bit. People were able to save a bit of money and pay down some debt.

[00:14:39]So, we're off peak debt levels from a household perspective.

[00:14:44]Um, at a business level, the data that we have um in our Financial Stability Report is really more at a corporate level. It's harder for us to get data at the in the small business sector. Um, but uh the data that we're looking at in terms of balance sheets and stress indicators, including insolvencies, we have seen stability and even some decline in areas. So, but I think we're conscious that there are things that the data doesn't measure well. Uh, first of all, the gains that have helped households, the gains that that we talked about, that helped us through the the mortgage um renewals, um income increases, increases in household wealth that we talk about in the report, those aren't spread equally across households, of course. So, there is some inequality there. There is no doubt still some some households where those gains have either not occurred or not occurred to a level that are helping them deal with the higher cost of living. So, there's still going to be some there. That stress is still going to show up in some of these surveys.

[00:15:55]And of course, the other thing that all the data, whether it's Equifax's data or our data, doesn't measure is how people feel, right? And and it can be true that the data looks better, and people still feel stressed. Canadians have gone through a lot of economic and financial stress over the last years.

[00:16:16]The headlines feel precarious, things feel uneasy. So, even households that are coping well and able to make their debt payments, that all gives us really nice looking data.

[00:16:29]I'm sure there's still a level of stress there, so.

[00:16:34]>> Okay. Um we're now going to go to our regional offices, and I'm going to call first on Toronto, where I see Mark >> mentioned in the report how a couple potential economic shocks could rebound onto the financial system, higher oil prices, uh a CUSMA renewal that doesn't go the way you want it to go, or the way Canada wants it to go. I'm wondering on the second one, like how how should we think about the financial stability risks of a unsuccessful CUSMA renegotiation, or a CUSMA renegotiation that leads to either sustained uh sectoral tariffs that are not being removed or potentially sees either new tariffs being put on Canada.

[00:17:24]What would happen from a financial stability perspective and what channels would a kind of macro shock like that work on the financial system through?

[00:17:35]>> I mean, the you in some sense you described it well yourself, Mark. The primary channel that the a negative outcome in in our trade relationship or further negative outcome in our trade relationship with the US would impact financial stability is really through a deterioration in the macro environment. We would we would see growth would be hurt, unemployment would probably go up.

[00:18:05]That's that's the primary channel that we would see that evolve. But, you know, really when we think about shocks, um it's probably the shock that we haven't thought of that is the most dangerous.

[00:18:17]Um you know, we we spend a lot of time trying to think through you saw you see us do it in the stress test in in the FSR.

[00:18:24]You know, the the stress test is quite different than the scenarios we present in the MPR. And when we run a stress test, we we really try and think of something we think has a very low probability but a high impact.

[00:18:37]And so, what we did this time around is we took the the adverse scenario from our last MPR and then we layered in some financial stress. And really, what we're trying to do is push the financial system to to its edges and just to see, you know, how resilient is it? How much stress could it take?

[00:18:55]So, I mean, that's the point of running a stress test, but I can tell you over the years um in in this business and in in the regulation business, the shocks that are really dangerous are the things you never thought of happening. Because those are the things you haven't planned for. So, so that's really, you know, what keeps me awake is what have I not thought of.

[00:19:20]>> Hey, on va terminer à Montréal >> And we'll go to Montreal >> de journal de >> from Le Devoir.

[00:19:27]>> Bonjour.

[00:19:30]>> Pas question?

[00:19:30]>> Pas question.

[00:19:32]>> Merci.

[00:19:33]>> Huh?

[00:19:33]>> No, okay. Merci.

[00:19:34]>> Thank you.

[00:19:35]>> Merci. Woo.

[00:19:36]>> Better?

[00:19:37]>> And with that, that will conclude today's press conference. So, thank you to the Senior Deputy Governor and to the Deputy Governor for joining us.

[00:19:43]We'll see you all back here in about 2 weeks for an interest rate announcement on June 10th.

[00:19:49]>> Merci.

[00:19:50]Go Habs.