Can Canada’s financial system withstand these growing risks?

Annual report highlights the biggest risks to the resilience of the financial system in 2021

Can Canada’s financial system withstand these growing risks?
Steve Randall

Canada’s financial system is robust. But every year there are increasing risks to its stability and this past year has certainly added to that.

However, the pandemic is not the biggest risk viewed by leading financial institutions’ chief risk officers.

A survey of members of the Global Risk Institute puts the pandemic in fourth place, behind economic risk, cyber risk, and climate change. Geopolitical risk has eased significantly from last year.

Credit risk and market risk have also increased year-over-year while risk from consumer debt, housing market, and technology disruption and innovation have declined.

"Some of the top risks from prior years have been impacted and, in some cases, overshadowed by events brought about by the global pandemic," said Sonia Baxendale, President and Chief Executive Office of GRI. "With that in mind, we added some new questions related to COVID-19 to gain insight into the impact of the pandemic on financial institutions and the Canadian financial system."

The survey found that the pandemic is set to have a tangible impact on business operations throughout 2021 with a slowdown of the economy and the threat of COVID-19 top of mind.

The growing cyber risk is related to a larger share of people working from home along with more devices accessing digital banking environments and increased online shopping.

High-impact event expected

More than three quarters of respondents believe that 2021 will see a high-impact event based on risks identified in the survey.

However, 100% of them were confident that the Canadian financial system is able to withstand such events. Financial institutions are well-prepared in this regard.