Bank of Canada Governor Tiff Macklem, speaking at the Global Risk Institute in his role as Chair of the Financial Stability Board’s Standing Committee on Assessment of Vulnerabilities, argued that financial stability risks are increasingly concentrated in non-bank finance as activity migrates from the regulated banking sector. He highlighted leveraged hedge fund trading in sovereign bond markets and the rapid growth of private credit as areas where limited transparency and fragile funding structures could amplify stress, and he called for closing data gaps and strengthening cross-border monitoring. On sovereign debt, Macklem noted that hedge funds have become central to market functioning, including in Canada where they buy up to 50% of Government of Canada bonds sold at auction, but often fund positions with short-term repo borrowing, with about half of repo funding globally at overnight maturities and haircuts described as zero or negative more than 80% of the time. He warned that a jump in volatility could tighten repo terms and force rapid deleveraging, worsening liquidity and price moves, citing episodes such as the early-pandemic “dash for cash”, the 2022 UK gilt crisis and recent US Treasury market stress. On private credit, he pointed to a global market measured in the trillions of dollars that has limited downturn history and is harder to assess because loans are not regularly marked to market, leverage and underwriting quality can be opaque, and liquidity mismatches can emerge, with potential spillovers to banks and insurers through lending, sponsorship, warehousing and risk transfer. He set out priorities for the FSB’s work to deepen understanding through improved data on leverage, liquidity transformation and interconnections, alongside infrastructure measures to support repo market resilience, including central clearing. In Canada, the TMX is building a domestic tri-party repo solution, which the Bank of Canada plans to use for its domestic repo operations by early next year, and the Bank intends to centrally clear its own repo operations once TMX completes related investments in fixed-income clearing infrastructure.
Bank of Canada 2026-03-04
Bank of Canada flags systemic vulnerabilities from hedge fund leverage and private credit and plans to use TMX tri-party repo
Bank of Canada Governor Tiff Macklem noted rising financial stability risks in non-bank finance, especially leveraged hedge fund trading and private credit growth. He stressed the need for better data and cross-border monitoring to tackle transparency and funding issues. Macklem's priorities for the Financial Stability Board include improving leverage and liquidity data and supporting repo market resilience, with the Bank of Canada planning to use TMX's tri-party repo solution.