stephen s poloz : release of the financial system review opening statement by mr stephen s poloz, governor of the bank of canada, at the press conference following the release of the financial system review, ottawa, ontario, 28 november 2017. * * * good morning. thank you for coming here to the bank of canada. senior deputy governor wilkins and i are happy to be with you to talk about the latest issue of the bank ’ s financial system review ( fsr ), which we published today. i will start with a reminder about the purpose of the fsr. in it, we identify key vulnerabilities in the financial system, which can interact with and magnify economic shocks. we monitor the evolution of these vulnerabilities, and we look at their potential implications for the financial system and economy if a significant shock were to occur. the most important vulnerabilities for the financial system remain the high level of household indebtedness and imbalances in housing markets. these vulnerabilities continue to be elevated and it will take a long time for them to return to more sustainable levels. a stronger economy and sound policies are working in the same direction to help bring about a gradual easing of these vulnerabilities, and this trend should continue. let me give you some details. since our last report in june, household debt has continued to rise more quickly than household income. borrowing for mortgages and home equity lines of credit is driving this growth. further, we see that households with the highest debt relative to their income are carrying a growing share of the total. that said, new and pending rules for housing finance should help mitigate this vulnerability. last year, the government introduced stricter rules for high - ratio mortgages — that is, where the down payment is less than 20 per cent of the value of the home. these rules are continuing to improve the quality of new high - ratio mortgages. fewer of these mortgages are being issued, particularly among highly indebted households. however, we have become increasingly concerned about low - ratio mortgages — those where the down payment is more than 20 per cent of the value of the home. we are continuing to see an increase in new low - ratio mortgages that have riskier characteristics. more of these are being taken out by highly indebted households, and a growing share of borrowers is choosing an amortization period longer than 25 years. last month, the office of

would have been no dominion. in the east, construction of the intercolonial railway was a condition for nova scotia and new brunswick to join confederation in the first place. in the west, amid american dreams of northern expansion, the canadian government needed a railroad to assert sovereignty over the prairies. and it enticed the colony of british columbia to join confederation with the promise of a transcontinental railway. when completed, canada would have railways running from sea to sea. the nation, and its economy, would not have worked without them. however, building a railway with an all - canadian route over the vast canadian shield would be tremendously difficult and expensive. to get this done, canada again had to turn to foreign investment to help fund construction. over its first 20 years, canada was routinely running current account deficits of between 7 and 10 per cent of gross domestic product ( gdp ), financed by foreign borrowing. this was not a problem, of course, as the borrowing was being used to increase the economy ’ s capacity. to complete the railroad, the government turned to a group that included donald smith — also known as lord strathcona — and his cousin george stephen, president of the bank of montreal and, as it happens, an ancestor of mine. ( stephen is my mother ’ s family name. ) just as there would be no dominion without the railroad, it is also fair to say there would be no railroad without the effort and skill of these early entrepreneurs and financiers who helped attract foreign capital and channel it where it was needed. the people who developed what has become the world ’ s soundest banking system were vital to canada ’ s development. in fact, the bank of montreal served as fiscal agent for the canadian government in the years after confederation, a role the bank of canada now fulfills. the canadian pacific railway ( cpr ) was completed by 1885, opening up the west to flows of goods and people. this link may have been necessary for growth, but it would prove insufficient on its own. the world was in the grips of the victorian depression, a generation - long economic slump that followed the financial crisis of 1873. looking back on the period, it is a wonder that the cpr was completed during such difficult times. even though thousands of immigrants continued to arrive in canada each year, a greater number of people were leaving canada for the united states, where economic conditions seemed better. in these difficult circumstances, the canadian government turned