Canada: Financial Sector Assessment Program-Technical Note on Systemic Risk Analysis

International Monetary Fund

No 2025/244, IMF Staff Country Reports from International Monetary Fund

Abstract: This Technical Note focuses on Systemic Risk Analysis in Canada. The financial system has remained stable amid sizable swings in output, inflation, and interest rates. Structural vulnerabilities persist among Canadian households, with high debt levels and rising debt-servicing costs compared to G7 peers. The corporate sector has remained resilient despite sluggish growth during the pandemic and tighter financial conditions thereafter. However, a materialization of downside macroeconomic risks could impact the financial sector through several channels. Financial Sector Assessment Program bank solvency stress tests indicate that the seven Canadian systemic Debt-to-Income (DTIs) are resilient to the adverse scenario. Liquidity stress tests show that the systemic DTIs are overall liquid and resilient to sizable withdrawals of funding and market valuation shocks. An interconnectedness and contagion analysis evaluated the impact of funding and credit shocks among the six Domestic Systemically Important Banks and across sectors and borders. This interconnectedness, and the associated risks, require vigilant monitoring and analysis to identify potential vulnerabilities that could emerge in times of stress.

Keywords: risk analysis; insurance solvency stress test; solvency stress Test. sensitivity analysis; solvency ratio; credit market; Insurance companies; Pensions; Insurance; Mortgages; Global (search for similar items in EconPapers)
Pages: 132
Date: 2025-08-15
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