MNI: Text: BOC Opening Statement On Financial System Review

     The Bank of Canada released the following opening statement Thursday from

Governor Stephen Poloz on the Financial System Review: 

     Good morning, and thank you for being with us today. Senior Deputy Governor

Wilkins and I are glad to have the opportunity to discuss the latest issue of

the Bank of Canada's Financial System Review (FSR), which we published today.

     The traditional purpose of the FSR is to identify key vulnerabilities in

the financial system that can interact with and magnify economic events. Today,

we are facing an extreme event in the form of the COVID-19 pandemic. This FSR

gives an in-depth analysis of the impact of COVID-19 on the Canadian financial

system and the implications for the economy.

     Since the pandemic began, the Bank has focused on keeping financial markets

functioning well. As we said last month in our Monetary Policy Report (MPR), the

short-term goal is to help Canadian households and businesses bridge the crisis

period. The longer-term goal is to provide a strong foundation for economic

recovery. Both of these goals require a well-functioning financial system to

ensure the success of the extraordinary fiscal response that has been put in

place.

     Today's FSR looks at the results of many of the programs the Bank has

implemented since the onset of the pandemic. These programs have succeeded in

restoring good functioning to many key financial markets that had been showing

signs of significant stress. Bid-ask spreads and yield spreads in many markets

have narrowed significantly. Access to liquidity for financial institutions has

greatly improved. And many of our programs to support financial markets are

being used less and less as conditions stabilize.

     That said, considerable uncertainty remains about the future course of the

pandemic and its economic consequences. The Bank will continue to do what is

necessary to keep core financial markets working so that credit channels remain

open for households, businesses and governments. It is important to remember

that our programs and facilities, as well as the government's fiscal response,

have been designed so that they can expand in line with the pandemic's impact.

     In addition to the Bank's programs to support financial markets, we have

cut our policy interest rate to its effective lower bound. These reductions,

grounded in our inflation-targeting framework, will help stabilize the economy

and employment and lay the foundation for recovery. Emergency government

programs are mitigating income losses for households and businesses. Enhanced

regulatory flexibility is giving financial institutions greater freedom to

continue lending as risks increase. And banks have been flexible themselves in

providing payment deferrals to many customers.

     Today's FSR analyses the resilience of the financial system in this unusual

context. We find that the country's banking system and financial market

infrastructures are strong enough to deal with the situation-and even the more

severe economic scenario that we outlined in last month's MPR. The resilience of

our financial system stems in part from the fact that our economy was in good

shape going into this episode. The economy was operating near its capacity,

inflation was at target and banks were well-capitalized, with ample access to

liquidity.

     To be clear, the pandemic remains a massive economic and financial

challenge, possibly the largest of our lifetimes, and it will leave higher

levels of debt in its wake. The right combination of fiscal, monetary and

macroprudential policies can ensure a return to economic growth and debt

sustainability. Further, policy-makers have taken the lessons of past crises to

heart and acted to strengthen the financial system. Canada's adherence to

reforms after the 2007-09 global financial crisis, which strengthened the

banking sector, is paying off. I am confident that a strong financial system

will help Canada emerge from this episode in relatively good shape.

     With that, Senior Deputy Governor Wilkins and I would be happy to answer

your questions.

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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