UPDATE 1-Bank of Canada says housing market risk still high

Thu Dec 6, 2012 10:49am EST
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* Overall risks to financial system remain high

* Household debt the biggest domestic risk

* Bank flags concern over strong multiple-unit starts

* Euro debt crisis, fiscal cliff big external threats

By Louise Egan and David Ljunggren

OTTAWA, Dec 6 (Reuters) - High household debt and a heated housing market remain the biggest domestic threats to Canada's financial system, the Bank of Canada said on Thursday, despite tighter mortgage rules introduced by the government in July.

"The most important domestic risk to financial stability in Canada continues to stem from the elevated level of household indebtedness and stretched valuations in some segments of the housing market," the central bank said in its semi-annual Financial System Review.

Canada's financial system remains robust but the overall risks to the stability of the banking sector remained high, unchanged from June, it said.

The bank ranked the European debt crisis as "very high," the highest of its four levels of risk, and it described ongoing U.S. fiscal negotiations as a major near-term threat.   Continued...