The Bank of Canada released its biannual Financial System Review (FSR) Wednesday. The 53-page report
highlights the good and bad in the Canadian financial system.
Governor Stephen Poloz stated, “We judge that the probability of an adverse shock has eased since our June FSR. This mitigates our observation that some financial vulnerabilities appear to be edging higher, leaving our overall assessment of financial stability risk roughly the same as in June."
The biggest risk to Canadians is increasing interest rates which would reduce our ability to service our household debt causing real estate prices to correct. Should this happen, the likelihood is low, the hit to the economy would be severe.
Finally, in a tip of the hat to declining oil prices, “We are also monitoring other emerging vulnerabilities and risks to the global economic outlook, including the continued weakness in oil and other commodity prices that could cause financial stress in some economies.”