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Governor Tiff Macklem discusses financial risks from the COVID‑19 pandemic that are affecting our economy and that could shape how well it recovers. He also talks about financial risks from climate change.

Watch Governor Macklem speak to the Global Risk Institute on its 10th birthday via webcast. Read the full speech.

The financial system is helping Canadians, but risks remain

The impact of the pandemic on lives and livelihoods is beyond anything we’ve experienced in our lifetimes.

Along with actions by the government and the Bank of Canada, a resilient financial system is helping Canadians through the COVID‑19 crisis. But it will be a long, slow climb to get everybody back to work. A full recovery from the crisis will take time, and many risks remain.

The longer the pandemic threatens jobs and incomes, the greater the risk of trouble for households with a lot of debt. Government support programs have bridged the financial gaps for people through the crisis, and lenders have been flexible about payments. The six-month deferrals that financial institutions offered are ending, though, so the next few months will be crucial.

Businesses are also finding it hard to cover debt payments with lower revenues, especially those in service industries such as restaurants and hotels. This too could become a bigger issue the longer the recovery takes.

Canada’s financial system has shown its resilience. It continues to work as a shock absorber, helping Canadian households and businesses deal with the economic impact of the pandemic.”

While low interest rates support recovery, they could have side effects later

Higher household, corporate and government debt arising from the necessary measures to get through the crisis today will affect how vulnerable the financial system is in the future.

The Bank will keep a close eye on how this evolves, particularly because we have pledged to keep interest rates low.

Low interest rates support the housing market, and that’s helping the economy recover from the crisis. Still, we and other policy-makers will watch for signs that:

  • housing prices are rising due to speculation, or
  • buyers are taking on more debt than they can afford.

The bottom line is that the private and public sectors together need to be acutely aware of financial system risks and vulnerabilities as the economy recovers.”

Financial risks from climate change are growing

The Bank is working hard to understand the implications of climate change for the Canadian economy and financial system.

Physical damage to real estate, infrastructure and other assets from weather events such as storms and wildfires will almost certainly be more common in the coming years. Many businesses also face significant risks linked to the transition to a low-carbon economy.

Businesses need a reliable, consistent and comparable way to measure and show their exposure to climate risks. Financial institutions, too, need to understand their exposures and be honest about them. That means having better information that combines climate analysis with economic and financial data.

We are working with other central banks and financial system supervisors to study how companies should weigh and disclose climate risks that affect them.

Measuring, pricing and managing climate risks will require an all-hands-on-deck approach—involving the private sector, the public sector and the research community.”

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