Tiff Macklem, Governor of the Bank of Canada and Chair of the Financial Stability Board’s Standing Committee on Assessment of Vulnerabilities (FSB SCAV), addressed an audience at the Global Risk Institute in Toronto, discussing how emerging players are influencing financial stability. Macklem highlighted that while global growth remains steady at around 3%, risks to this outlook have increased due to geopolitical tensions, including recent actions involving Iran, Israel, and the United States.
Macklem noted that “Conversations like this matter—especially when uncertainty is high and we’re all trying to manage the risks.” He explained that systemic vulnerabilities can build outside the view of individual firms and emphasized the need for a well-functioning financial system with clear rules and good information. The Bank of Canada plays a key role in overseeing monetary policy and maintaining price stability within Canada’s financial sector, as outlined on its official website.
He identified two main areas where non-bank financial intermediaries are growing: leveraged trading by hedge funds in government bond markets and private credit. According to Macklem, “The issue is what happens in times of stress. Hedge fund purchases of sovereign debt are usually highly leveraged.” He described how these positions are often funded through short-term repurchase agreements with low or negative haircuts, making markets more sensitive to disruptions.
Macklem referenced past market stresses such as those seen during the onset of the COVID-19 pandemic and last year’s US Treasury market volatility. He warned that “Short-term funding strains could cause severe dislocations in sovereign debt markets—the backbone of our financial system.”
To address these vulnerabilities, he pointed out ongoing efforts to improve infrastructure for repo markets. In Canada, TMX is developing a domestic tri-party repo solution that will be used by the Bank of Canada for its operations next year. Once further investments are made into fixed-income clearing infrastructure, central clearing will also be implemented for repo operations.
On private credit, Macklem said it provides important financing options but carries risks due to its opacity and lack of historical data through downturns. “The issue is not private credit itself. It’s how private credit will behave under stress—and the risks it poses to the broader financial system,” he stated. He expressed concern about potential spillovers from private credit into regulated sectors like banks and insurers because interconnections can transmit shocks quickly across borders.
The Bank of Canada continues to focus on economic oversight and managing currency systems while regulating retail payment systems within Canada (source). Since his appointment as governor on June 3, 2020 (source), Macklem has also overseen initiatives engaging university students in monetary policy simulations (source).
In conclusion, Macklem said: “We are counting on the private sector to be the first line of defence. As we gain understanding of systemic vulnerabilities, it’s critical that we communicate with you. And we need to work hand in hand to strengthen core financial market infrastructure.”
He thanked Grahame Johnson for assistance in preparing his speech.
