, at variable rates with amortization periods of more than 25 years. and our models suggest that the most highly indebted households saw only a small increase in their liquid assets in that time. this brings me to our second, and related, vulnerability — elevated house prices. strong demand for more living space, low interest rates, inadequate supply, increased investor activity and expectations of future price increases all made for a hot market during the pandemic. house prices rose about 50 %, on average, since the beginning of the pandemic. as canadians return to more normal activities and interest rates rise, we expect to see some moderation in the housing market. indeed, this has started. recent data indicate a marked decline in the level of resale activity from its peak. and even if house prices are up sharply on a year - over - year basis, some markets have recently seen declines. with inflation well above the 2 % target and the canadian economy overheating, the bank ’ s number one priority is to get inflation back to target, and we are raising interest rates to make that happen. labour markets are very strong, and household balance sheets have improved overall. the economy can handle — indeed needs — higher interest rates. and given the unsustainable strength of housing activity, moderation in housing would be healthy. but high household debt and elevated house prices are vulnerabilities. if the economy slowed sharply and unemployment rose considerably, the combination of more highly indebted canadians and high house prices could amplify the downturn. if those in highly indebted households lose their jobs, they would likely need to reduce their spending sharply to continue servicing their mortgage. in addition, a big correction in house prices would reduce both household wealth and access to credit, particularly among the most - indebted households. were this to affect many households, it could have broad implications for the economy and financial system. this is not what we expect to happen. our goal is for a soft economic landing with inflation coming back to the 2 % target. but it is a vulnerability to watch closely and manage carefully. let me now turn to carolyn to address three global vulnerabilities outlined in the fsr. thank you, governor. the final set of vulnerabilities described in our fsr has been highlighted by the war in ukraine and other geopolitical tensions, and some risks are rising. events over the past year have emphasized the interconnected nature of the

opening statement by tiff macklem and carolyn rogers governor and senior deputy governor of the bank of canada press conference following the release of the financial system review june 9, 2022 ottawa, ontario good morning. i ’ m pleased to be here with senior deputy governor carolyn rogers to discuss the bank of canada ’ s financial system review ( fsr ). the fsr is our annual assessment of the key vulnerabilities of and risks to the canadian financial system. our goal in identifying these is to help households, the private sector, financial authorities and governments take actions to reduce them. we have just come through the biggest shock i hope any of us ever have to face — two years of a pandemic and unprecedented economic and social upheaval. we are pleased to report that our financial system is strong and weathered the crisis well. now, the global economy is dealing with a new set of challenges : high inflation, rising interest rates, russia ’ s unprovoked invasion of ukraine and financial market volatility. so this is a good time to discuss existing and emerging vulnerabilities and risks. in nearly every fsr, we warn about the high debt that many canadian households are carrying, and we warn about elevated house prices. those are not new vulnerabilities, but the pandemic has affected them. over the course of the pandemic, household balance sheets shifted as both spending and incomes adjusted. on average, household wealth increased as a result of rising asset values, including real estate, and markedly higher savings. this improvement, and the rise in savings in particular, is remarkable considering the devastating and lasting impacts the pandemic could have had. but to assess vulnerabilities we need to look beyond the average and examine the distribution of changes across households. what we see is that, even as the average household is in better financial shape, more canadians have stretched to buy a house during the pandemic. and these households are more exposed to higher interest rates and the potential for housing prices to decline. two - thirds of canadians are homeowners. just under half own their home outright, and the rest have a mortgage. of those, 70 % have a fixed - rate mortgage that is not immediately affected by higher interest rates. the other 30 % — or 10 % of canadian households — have a variable - rate mortgage. throughout the pandemic, a growing number of canadians took out mortgages that were very large relative to their incomes