Bank of Canada survey finds more institutions expect financial shock soon
Canadian institutions are showing dwindling optimism, according to a new survey. The Bank of Canada (BoC) has released the spring 2022 results of its Financial System Survey (FSS). The FSS is a semi-annual survey of risk managers, allowing the Bank of Canada to compare expectations with its own. The survey results show that more institutions are expecting a shock to the financial system soon.
More Canadian institutions expect a short-term shock to the financial system
Canada sees the share of risk professionals who expect all to be well fade very quickly. The results show that 58% of risk professionals believe that a short-term shock is “little” or “not at all” likely. The Spring 2022 survey represents a 29% drop from the Fall 2021 survey share, indicating that more risk is expected.
Do Canadian financial institutions see the short-term risk of a financial institution shock?
How risk managers responded when asked if they saw a near-term risk (within a year) of a shock to the Canadian financial system.
Source: Bank of Canada; Live better.
The reverse side of the results shows that a greater proportion of respondents see more risk. Respondents who consider the short-term shock to be “moderately” or “somewhat likely” jumped to 42 points in spring 2022. The increase is more than 3 times the share in fall 2021.
Canadian institutions are increasingly certain that a shock will occur within 3 years
Medium-term risk expectations (1 to 3 years) are also increasing, but this is more subtle. The survey revealed that 62% believed that a shock was “slightly” or “unlikely” likely to occur in the medium term. That’s unchanged from the fall 2021 results, but the share that said “unlikely” has been halved.
Do Canadian financial institutions see a medium-term risk of a financial institution shock?
How risk managers responded when asked if they saw a medium-term risk (in 1-3 years) of a shock to the Canadian financial system.
Source: Bank of Canada; Live better.
Respondents who expected a shock in the medium term became more certain that it would occur. Those who said it was “moderately” or “somewhat” likely to happen fell to 35% in spring 2022. That’s down 2 points from the previous survey, but it’s a bit more complicated where the colon went.
The mid-term poll saw more responses showing the shock is “extremely likely”. The Bank of Canada found that almost 4% of respondents were certain that a medium-term shock is coming. This was double the share of the fall 2021 survey.
On the positive side, confidence in the ability of the financial system to manage risk is still high. It has shown only minor fluctuations in recent years, as most believe Canada is able to respond. After all, everything is transient over a sufficiently long period of time.