stephen s poloz : release of the financial system review opening statement by mr stephen s poloz, governor of the bank of canada, and ms carolyn wilkins, senior deputy governor of the bank of canada, at the press conference following the release of the financial system review, ottawa, ontario, 7 june 2018. * * * governor poloz : good morning, and thank you for being here today. senior deputy governor wilkins and i are pleased to be with you to talk about the latest issue of the bank ’ s financial system review ( fsr ), which we published today. let me quickly remind everyone about the purpose of the fsr — to identify key vulnerabilities in the financial system, which can interact with and magnify economic shocks. we monitor the evolution of these vulnerabilities, and then apply a set of risk scenarios to look at the potential implications for the financial system and economy if a significant shock were to occur. the main vulnerabilities that we see today are the same as those in the last fsr in november. i will begin with a few words about two of these : elevated household debt and imbalances in housing markets. these vulnerabilities are expected to persist for some time, although we have seen continued signs of easing. several factors are helping to lessen the vulnerability related to household indebtedness. importantly, there has been a series of changes to mortgage lending guidelines. we have also seen a slowdown in credit growth along with higher interest rates. as well, a solid expansion in the canadian economy is leading to strong growth in employment and income and, over time, this will support canadians ’ ability to manage their debt, even at a time of rising interest rates. the changes to mortgage lending guidelines are driving a steady improvement in the quality of new loans. we have seen a decline in the share of mortgages that have a loan - to - income ratio above 450 per cent. in fact, the share of new insured mortgages that have a ratio above this threshold has been cut in half since the middle of 2016. this is an important improvement, because we know that households with this level of debt are more vulnerable to an economic shock, such as a recession. however, i will point out two reasons for continued vigilance. first, because the total amount of debt carried by canadian households is so large, we know that it will be with us for a long time. second, it is still too

, and canada radically amended some of its laws. the banks reacted to the new competitive environment by innovating and improving their efficiency. canadian institutions became global leaders while foreign banks lagged, bound by more restrictive and less efficient regulatory regimes. for a full 30 years, canada maintained its lead on the world stage. recall that subsequent revisions to the law allowed greater competition between traditional pillars of finance, i. e., banking, insurance, brokerage, and trusts, thus driving down costs and increasing efficiency. over the course of the past decade, efforts have focused on improving prudential regulation, which seeks to stabilize institutions and the financial system as a whole. in 1987, the federal government created the office of the superintendent of financial institutions and the financial institutions supervisory committee. the purpose of the latter is to facilitate the exchange of information between various federal bodies involved with financial stability, including the bank of canada. at the bank, one of our less well - known mandates is to oversee payments infrastructures, especially the large value transfer system. the lvts is an electronic system launched in 1999 and operated by the canadian payments association. it meets or exceeds the highest international standards in matters of risk management, and does so at a fraction of the cost. experience has shown that a solid and comprehensive infrastructure contributes greatly to the robustness of a financial system. allow me to take advantage of this occasion to draw your attention to another less - recognized contribution of the bank : its financial system review. in it, the bank presents its current analysis of systemic risks, along with articles that tap into the wealth of research that we conduct into financial markets. in other matters, the restructuring of canadian stock exchanges at the end of the 1990s allowed specialization and solidified our market position. since that time, the montreal and toronto stock exchanges, and the tsx venture exchange have experienced remarkable expansion. it remains to be seen how the inchoate movement to consolidate markets elsewhere in the world will affect us here, and the new challenges it will pose to canadian stock exchanges. also, even though north american financial markets are more integrated than ever before, their regulation has not always kept pace, and non - tariff barriers, which one would have expected to disappear in an era of free trade, persist. in particular, i am thinking of the constraints imposed on small u. s. investors wishing to buy canadian stock. all in all, even though the canadian financial system has continued to develop since the porter report, it is clear