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

, what about the more general issue of the integration of asia, and particularly china, into the world economy? china's rising prominence in world trade has been partly a reflection of its increasing importance as an assembly platform for a broad range of exports. china's exports in the 1980s and early 1990s were concentrated in clothing, footwear, and other light manufactured goods. more recently, its share of world exports has increased in nearly all categories, with rapid growth in areas such as office machinery and telecommunications, furniture, textiles, travel goods, and industrial supplies. the increasing sophistication of chinese exports means growing competition for canadian products, both at home and in world markets. 1 but we should not forget that the emergence of china and india as major economic players also offers canadian firms the opportunity to profit by expanding into these huge export markets and by tapping into cheaper sources of supplies. let me now elaborate a bit on the implications of these global trends for canada. implications for canada the rise of china and other newly industrialized countries to economic prominence, and the need to resolve the existing large global imbalances, have triggered sizable movements in key relative prices that are particularly relevant for canada. i am referring specifically to the dramatic rise in the world prices for raw materials and energy, and to the marked appreciation of the canadian dollar since 2002. 2 when prices for energy and non - energy commodities rise relative to the prices of other goods that canada produces, it is a signal that economic resources need to be shifted into the production of commodities. that's one implication. another implication, given canada's strength in commodity production, is higher real incomes for canadians. as those incomes feed into stronger demand, the benefits extend to the sectors of our economy that are less exposed to global forces, such as housing and various services. but, of course, that's only part of the story. the other part is that large segments of the manufacturing sector, because of their exposure to growing competition from asia and because of the higher canadian dollar, will expand less rapidly relative to other sectors. as this process unfolds, labour and capital are reallocated across economic sectors. a quick look back at the asian financial crisis of 1997 - 98 might help to put this current challenge in perspective. what we went through then is essentially the reverse of the current situation. at that time, world commodity prices plummeted, the canadian dollar depreciated sharply and, in response to these price signals, production