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Free AccessMNI: 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
[TOPICS: M$C$$$]
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.