The Bank of Canada is discovering that explaining risk to Canadians is actually difficult

After years of being ignored by almost everyone but a few bankers and financial journalists, you might think the people who work at the Bank of Canada would be annoyed by everyone telling them what to do.

But according to the bank's senior deputy governor, Carolyn Rogers, despite the bank becoming a political football criticized by leaders of both opposition parties, labour advocates, homeowners and people in the real estate business, and by letters to the editor offering solutions that are declared obvious and simple, she says they like all the attention. 

"I think my colleagues have really embraced that extra scrutiny and criticism," Rogers told a group of students and young financial professionals at the University of Ottawa Tuesday.

"We're getting lots of advice. We don't agree with all of it, but we do listen to all of it."

Open season on central bankers

Other financial experts worry that now that it's become open season on central bankers, there is a danger that Canadians could lose confidence in the crucial job that the Bank of Canada does keeping our money safe and our financial system sound.

In something like a Reddit Ask Me Anything, Rogers responded frankly to questions at Tuesday's event. 

But her message, which began with an update on the risk of instability to the Canadian financial system, was only partly reassuring.

The Bank of Canada's recent media star status makes the hour-long session useful unmediated viewing for those who have caught the central banking bug. It included the bank's take on the current crypto crisis, digital loonies and climate change risk.

But as the bank warned in June in its annual Financial System Review, high Canadian debt levels, combined with high inflation and the rising interest rates needed to get inflation under control, make the Canadian economy vulnerable.

At that time, the bank warned those at greatest risk were people who bought a house at top prices and bottom mortgage rates, and said that it is possible those buyers would have to be sacrificed for the good of the rest of the economy.

While the risk of job losses that would have compounded the problem may be waning, Rogers said, rising interest rates and falling house prices are hurting more mortgage holders.

"The bottom line is that mortgage costs for some Canadians have already increased and they will likely increase for most others in time," she said.

• How has inflation and the high cost of living impacted you? Tell us your story in an email to ask@cbc.ca  

Trigger warnings

While those with fixed rate mortgages get a bit of a break before rate hikes kick in, an increasing number of those with floating rate mortgages have hit the "trigger rate" where mortgage payments simply are not enough to cover borrowing costs.

New data released by the bank on Tuesday shows that half of all variable mortgage holders with fixed payments now owe more than those fixed payments. 

"We estimate that just about all variable rate mortgages taken about between May 2020 and July 2022 are now in this position," said economist Royce Mendes in a Desjardins research note Tuesday.

WATCH | Bank of Canada's Tiff Macklem, CBC's Peter Armstrong decode central banking:

A different kind of trigger also got a mention in Rogers' speech, a reference to the kind of global or national crisis that could act on Canada's vulnerabilities and send the economy spiralling into bigger trouble.

"The risk of a trigger that may affect financial stability has increased," she said.

Central bankers don't predict crises, they just warn about them. But it is not clear that those warnings of risk have hit home in the past. It is not clear if people are listening now.

If there was a main message that came out of Rogers' Tuesday session it was that the Bank of Canada is anxious to inform and educate Canadians "to help them understand monetary policy," she said. But that may be a heavy lift, even though our central bankers keep trying.

Financial journalists like to try to make monetary policy sound simple, but as a Tuesday interview with Jeremy Kronick, Director of Monetary and Financial Services Research at the C.D. Howe Institute showed, it really isn't.

Doing your own brain surgery

Kronick explained why the Bank of Canada was currently losing money, because it had borrowed bonds that paid low interest rates but was paying commercial banks high interest rates for the money they had used to do that. He explained the difference between corridor rates and floor rates. It is all outlined here in what Kronick said was "a way that people understand."

The fact is that for most of us, central banking is not easy to understand. Like brain surgery, people with aptitude spend years learning how to do it. When we want a stable financial system, we bring in experts to do the job. 

"That's why it's been a bit frustrating to see [the Bank of Canada] politicized so much," said Kronick, who noted that Rogers and her team are known to be qualified by those who do actually understand what they're doing. They also know that even qualified experts can't always predict the future.

Kronick said that when central bankers — not just the Bank of Canada — failed to foresee that inflation would stick around after the COVID economic crash, commentators and politicians everywhere decided they could out-think the central bank.

Increasing interest rates hurts, and taking sides against the Bank of Canada may make people think you are smart. But he said eroding confidence in people like Rogers is bad for central banking and bad for the rest of us.

"It's natural that people are looking for alternative solutions," said Kronick. "I'm just not convinced that these so-called other solutions are going to lead to the results that people want."