International Study Says Canada is Most at Risk of a Banking Crisis

While everything may appear to be going swimmingly for the Canadian economy, there could be peril on the horizon.

According to early-warning indicators compiled by the Switzerland-based Bank for International Settlements, Canada is one of three economies – including China and Hong Kong – most at risk of a banking crisis.

This is despite the fact that the Canadian economy grew at its fastest pace since 2011 last year. Much of his growth was driven by aggressive consumer spending, particularly in the property market. The problem is that Canadians couldn’t actually afford their new digs, choosing instead to borrow at an alarming rate. Household debt is now at an all-time high.

“Aggregate credit indicators point to vulnerabilities in several jurisdictions. Canada, China and Hong Kong SAR stand out, with both the credit-to-GDP gap and the DSR flashing red,” reads the report. Translation: We’re maxing out our credit cards at dangerously irresponsible levels.

This concerning trend was first reported last November. For the first time ever, Canadians’ debt burden was greater than the entire Canadian economy. The latest report suggests this grim reality hasn’t improved since, and has likely worsened. Coupled with the fact that Canada’s economic outlook this year isn’t quite so rosy, many Canadians will have to live a little less lavishly in 2018.

It’s important to note that Canadian banks have weathered crises significantly better than banks in most other countries. This was evident most notably in 2008, when Canadian banks manoeuvred through the international financial crisis largely unscathed.

But maybe don’t put your boat, new pool, and next family vacation on the ol’ Visa card just to be safe.