Bank of Canada Governor Warns of ‘Sharp Correction’ Risks in Markets and ‘System-Wide Stress’

In his speech on the release of the Financial Stability Report, Tiff Macklem, Governor of the Bank of Canada, sought to emphasize the purported strength of Canada’s financial system while cautioning against ongoing risks that could precipitate a “sharp correction” in markets, potentially leading to widespread financial strain. “Some indicators of financial stress have risen,” Macklem said. “The valuations of some financial assets appear to have become stretched. This increases the risk of a sharp correction that could generate system-wide stress.” Macklem further emphasized the heightened use of leverage in the non-bank financial sector as a particular concern, which could exacerbate any market corrections. “The recent rise in the use of leverage in the non-bank financial sector could amplify the effects of such a correction,” the central bank’s governor said during the press conference in Ottawa, Ontario.