, which amounts to a checkup on the health of the country’s network of banks, shadow banks, asset managers, traders and investment houses. It’s a group over which the central bank has essentially no formal authority. But for one day at least, the FSR gives the governor a bully pulpit from which to attempt to exercise moral suasion.
Macklem flagged six “vulnerabilities,” or weak spots, that could cause the system to crumble if hit hard enough with an external shock, such as a recession or the failure of a big financial institution.: the mountain of debt that households have piled up chasing runaway prices, and those runaway prices, which, in some big-city markets, the Bank of Canada thinks are being pushed higher by speculation and naive expectations that home prices only go up.
Notably, the Bank of Canada’s most recent research suggests that the froth in at least some markets is now worse than in 2016 and 2017. Policy makers reckon that households with mortgages that are 450 per cent bigger than their incomes are vulnerable to bankruptcy. That group represented 22 per cent of all home loans in the fourth quarter, compared with a previous peak of about 18 per cent in the third quarter of 2017.
The figure was 16 per cent at the end 2019, when households appeared to be slowly working off their debts. That trend has reversed. Canadians are again adding to their already impressive debt piles, which represent a risk to future growth.