Canadian institutions are showing fading optimism, according to a new survey. The Bank of Canada (BoC) released the Spring 2022 results of its Financial System Survey (FSS). The FSS is a twice-yearly poll of risk managers, allowing the BoC to compare expectations to their own. Results from the survey show more institutions expect a financial system shock soon.
More Canadian Institutions Expect A Near-Term Shock To The Financial System
Canada is seeing the share of risk professionals who expect things to be fine, fade very fast. Results show 58% of risk professionals felt a near-term shock is only “slightly” or “not at all” likely. The Spring 2022 survey is a 29% drop in share from the Fall 2021 survey, indicating more risk is expected.
Do Canadian Financial Institutions See Short-Term Risk of A Shock To The Financial Institution?
How risk managers responded when asked if they see short-term (within 1 year) risk of a shock to the Canadian financial system.
Source: Bank of Canada; Better Dwelling.
The flip side of the results shows a greater share of respondents see more risk. Respondents that see near-term shock as ” moderately” or “somewhat likely”, climbed to 42 points in Spring 2022. The increase represents over 3x the share in Fall 2021.
Canadian Institutions Are Becoming More Certain A Shock Will Happen Within 3 Years
Medium term (1 to 3 years) risk expectations are also rising but it’s more subtle. The survey found 62% felt it was “slightly ” or “not” likely for a shock to occur in the medium-term. It’s unchanged from the results in Fall 2021 but the share who said “not likely” was cut in half.
Do Canadian Financial Institutions See Medium-Term Risk of A Shock To The Financial Institution?
How risk managers responded when asked if they see medium-term (in 1 to 3 years) risk of a shock to the Canadian financial system.
Source: Bank of Canada; Better Dwelling.
Respondents expecting a medium-term shock became more certain it would happen. Those who said it was “moderately” or “somewhat” likely to occur fell to 35% in Spring 2022. This is a drop of 2 points from the previous survey but it’s a little more complicated where the two points went.
The poll for the medium term saw more responses showing shock is “extremely likely.” The BoC found nearly 4% of respondents became certain a medium-term shock is coming. It was double the share in the Fall 2021 survey.
On the upside, confidence in the financial system’s ability to handle the risk is still high. It’s only shown minor fluctuations over the past few years, as most see Canada able to respond. After all, all things are transitory on a long enough timeline.
