Financial system resilient, but risks are significant: BoC survey

While the Canadian financial system remains resilient, the risk of a significant shock has increased, say risk management experts surveyed by the Bank of Canada as part of its twice-yearly Financial System Review.

In the survey, which was released on Friday, experts cited a cyber incident and rising defaults in the household/corporate sector as the top two risks — both to individual firms and the Canadian financial system as a whole.

The autumn 2020 survey, completed by 47 respondents, was conducted between Sept. 8 and 25. Alongside recurring questions, it introduced questions about the impact of and the responses to Covid‑19.

The BoC noted in a release that it had cancelled the spring 2020 survey due to the pandemic.

Among surveyed experts for the autumn edition, 98% indicated they were confident that the Canadian financial system will remain resilient, citing public sector support in response to Covid-19 as the reason.

However, the percentage of respondents who believed that risks have increased materially in the short term (less than one year) rose by 40 percentage points, while the percentage who believed that risks have remained unchanged fell by 36 percentage points, relative to the autumn 2019 survey.

Further, the percentage of respondents who believed that risks have increased materially in the medium term (one to three years) rose by 20 percentage points, while the percentage who believed that risks have remained unchanged fell by 17 percentage points.

These respondents said the economy and financial system are in a more precarious position as a result of the pandemic, and that the public sector may now have limited capacity to intervene further.

When asked to list the three top risks that would most harm the Canadian financial system, the respondents said a cyber incident, rising defaults in the household/corporate sector, and deterioration in the global economic outlook.

When asked to name the three top risks to their own organizations, the respondents also said a cyber incident and rising defaults in the household/corporate sector, but the third reason was the low-interest-rate environment.

A much larger proportion of respondents, as compared to the previous autumn 2019 survey, cited disruptions in information technology infrastructure as a top risk, with the new work-from-home environment given as the main factor driving that response.

Rudy Mezzetta

Rudy is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on tax, estate planning, industry news and more since 2005. Reach him at rudy@newcom.ca.