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

increase in the frequency, severity and sophistication of cyber attacks. because our financial system is so interconnected, a successful attack on one institution can potentially lead to widespread disruptions. we are working with our partners in the banking industry and public sector to ensure the system is robust and that institutions can recover quickly should any disruptions occur. to better understand the potential implications of all these vulnerabilities, we examined the same risk scenarios as we did in june. the risks are essentially unchanged. however, the policy changes affecting housing finance are clearly a step in the right direction. still, it will take time for these, as well as the effects of recent interest rate increases, to significantly reduce the vulnerabilities. meanwhile, our financial system continues to be resilient and is supported by improving economic fundamentals, in particular, by strength in the labour market. with that, senior deputy governor wilkins and i are happy to respond to your questions. 2 / 2 bis central bankers'speeches