The mountain of cash that Canadian households accumulated in aggregate during the Covid-19 pandemic has mostly sat dormant, so households deploying their savings shouldn’t shake financial markets, says National Bank Financial Inc. (NBF) in a new report.
NBF noted that Canadians socked away unprecedented savings in 2020 — over $210 billion, or 15% of disposable income, was left unspent.
As households draw down these savings, the extra spending is expected to kickstart economic growth. The NBF report addressed whether the unwinding of this massive savings glut could have disruptive effects for the financial system — for instance, whether banks would have to sell investments to finance the return of households’ deposits.
Not likely, it concluded.
“True, banks put money to work into debt securities last year, some went to equities/investment funds, while some was lent out (mostly via mortgages). But by far the largest share was left untouched/unutilized, sitting on deposit at the Bank of Canada,” it said.
When households decide they’re ready to spend, NBF said that the banks will be able to draw on their outsized deposits with the central bank, rather than selling assets to provide people with their money.
“A looming dissaving episode by Canadian households needn’t, on its own, undercut financial asset valuations since so much money is standing idly by,” the report said.
“Rather, we see the tapping of excess savings as providing vital fuel to drive an above-potential expansion this year and next.”