BoC Governor says excessive capital flows could distort asset prices and fuel protectionism
Bank of Canada Governor Tiff Macklem has sounded a fresh alarm over widening global trade and capital imbalances, warning that unchecked cross-border investment flows risk distorting asset prices, fuelling protectionism, and generating financial stability vulnerabilities that Canada cannot afford to ignore.
Speaking Tuesday in Paris, Macklem said global imbalances narrowed in the years following the 2008–09 financial crisis but were widening once more.
Persistent trade surpluses in China and Europe are pushing capital outward, while the United States continues to finance its consumption and fiscal deficits through heavy reliance on foreign inflows, a dynamic that has driven the US net international investment position to a historically large negative balance.
"Cross-border finance is a good thing," Macklem said. "But when flows become excessive, they can widen trade gaps, fuel protectionism and distort asset prices. Capital gets misallocated. Pressures cumulate and financial stability risks increase."
He drew explicit parallels with the period preceding the global financial crisis, cautioning that one-way capital flows — now reinforced by massive global investment in artificial intelligence infrastructure — risk inflating asset bubbles of a familiar kind.
Delayed exchange rate adjustment, he said, allows imbalances to persist and pressures to compound across the entire financial system.
What this means for Canadian brokers
Canada is not itself a driver of excessive imbalances, Macklem acknowledged. But that offers limited protection. "We are being knocked by increased trade tensions," he said, "and we could be sideswiped if financial stability risks crystallize."
For mortgage professionals, those risks have concrete transmission channels. The Bank of Canada's 2026 Financial Stability Report found Canada's financial system holding up, but operating in a more volatile environment.
Senior deputy governor Carolyn Rogers warned that aggregate stability figures masked growing debt strain among the most highly leveraged borrowers.
Tracy Valko, founder of Valko Financial, previously told Canadian Mortgage Professional that with US tariff risks and global economic pressures, mortgage rates may remain volatile, a concern Macklem's Paris remarks reinforce.
With economists anticipating a steady Bank of Canada overnight rate of 2.25% through the rest of 2026, the operating environment for renewals and new originations remains under sustained pressure.
The growing risk from non-bank lenders
A second concern Macklem raised is the migration of riskier financial activity from regulated banks to non-bank financial intermediaries — hedge funds, pension funds, private finance companies, and other asset managers — that operate with less regulatory scrutiny and limited data transparency.
He noted that these entities generally do not face the same reporting requirements as chartered banks, creating blind spots that global standard-setters and national regulators have yet to fully close.
For mortgage professionals who regularly place clients with private and alternative lenders outside the regulated banking sector, this is not a distant concern.
If those lenders face sudden liquidity stress from a global credit shock, their capacity to fund residential mortgages could tighten and without warning.
Macklem called for better data collection, cross-border regulatory co-ordination, and stress testing that reflects how fast and interconnected today's financial system has become.
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
