International board warns of Canada’s household debt
The Financial Stability Board expressed concern Tuesday about high levels of household debt in Canada leaving the country’s financial system vulnerable to an economic downturn.
“Households are reporting increasingly high levels of indebtedness,” the international financial supervisory and regulatory body warned in a study of the country’s financial situation.
According to the report, household debt as a share of disposable income hit a record high of 144 per cent last year. While household debt in the United States and Britain has gone down since 2009, following the financial crisis, it has risen in Canada. In 1990, it stood at 85 per cent of disposable income.
Though current levels of bank loan losses are low at three per cent, the advent of a “macroeconomic shock,” such as a recession, could hamper householders’ ability to service their debts, the Basel-based FSB said.
This, in turn, could impact negatively on the housing market and trigger an effect across the financial system, it warned.
“To address these risks, the authorities should continue to strengthen macroprudential surveillance and consider expanding the range of tools at their disposal,” the FSB said.
In its report, the body, set up in the aftermath of the 2008 financial crisis to co-ordinate global bank regulations, also backed a plan to introduce a national securities watchdog.
The endorsement follows that of the International Monetary Fund (IMF) and the Organization for Economic Development (OECD), but the plan in its current form was rejected by Canada’s Supreme Court in December.
Prime Minister Stephen Harper’s government asked the Supreme Court to rule on the constitutionality of its proposed Canadian Securities Act after it was opposed by at least two of 10 provinces that claim jurisdiction over financial markets.
After the legal blow, he said ministers would review the decision and “act in accordance with it.”
The Financial Stability Board is chaired by Bank of Canada governor Mark Carney.