Household debt is biggest risk to financial system say PMs, investment dealers

CSA has published its second annual systemic risk survey

Household debt is biggest risk to financial system say PMs, investment dealers
Steve Randall

Canadian households’ high levels of debt are a significant risk to the stability of Canada’s financial system according to portfolio managers and investment dealers.

Almost 500 wealth professionals were among participants in the CSA’s second annual systemic risk survey, which reveals that more than 75% of respondents felt that household debt poses a high- or very high risk to Canadian financial stability, up from 66% in 2022.

Most respondents said they concern was either higher (37%) or the same (61%) as it was in 2022.

Almost two thirds said they are concerned or very concerned about the financial system’s stability, up slightly from a year ago, with a similar share citing the level of interest rates, roughly in line with last year.

The housing market is also a major concern with 69% citing it as a systemic risk, up three percentage points from 2022. Geopolitics and cyber remain in the top five risks cited by those who took part in the survey conducted between October 16 and November 7, 2023.

"We appreciate the strong industry response to our second systemic risk survey, particularly in the context of increased economic uncertainty," said Stan Magidson, CSA Chair and Chair and CEO of the Alberta Securities Commission. "The response rate exceeded 48%, providing us with important and reliable information on new and existing risks to financial stability."

Benchmark transition

The transition of the interest rate benchmarks from CDOR to CORRA in credit and derivatives markets and the transition from two trading days to one (T+1) for the standard settlement period were not seen as major risks with most respondents seeing low risk (48% and 59% respectively).

Climate change remains a high or very high risk for around half of respondents, lower than government debt and crypto assets.