Canada’s central bank highlighted several vulnerabilities and risks to Canada’s financial system. Of particular interest:
- The recent increase in interest rates and increased market volatility have reduced liquidity in fixed-income markets. A sudden spike in demand for liquidity from asset managers could exceed the willingness of banks to supply such liquidity, causing large price movements and a potential freeze in some markets.
- State-sponsored cyber attacks are occurring with greater frequency and sophistication, increasing the risk of a successful attack on a Canadian financial institution or financial market infrastructure.
- The war in Ukraine, and concerns around global energy security, are likely to delay the transition to a low-carbon economy. Overall, the risk of a quick repricing of assets exposed to climate change has increased.
- Price volatility in cryptoasset markets remains high. The lack of a regulatory framework means many of the safeguards that exist in the traditional financial system are not present exposing investors to risks such as large and sudden financial losses due to fraud, price declines or a run on stablecoins.
On a separate note, the Bank of Canada reported that the Government of Canada has decided to cancel the issuance of its December 1, 2064 bond. As such, the previously announced auction on June 16, 2022 is suspended.