The Bank of Canada (BoC) published its Financial System Review (FSR) on Thursday.
Canada’s financial system remains resilient.
There could be volatility in global markets as expectations shift about the scope and timing of rate cuts.
Adjustment by financial institutions to higher rates and possible shocks has some way to go, presents risks to financial stability.
Some indicators of financial stress have risen; the valuations of some financial assets appear to have become stretched.
This increases the risk of a sharp correction that could generate system-wide stress.
The financial health of large businesses appears solid, but smaller businesses are showing more signs of financial stress.
Overall, evidence suggests households can continue servicing debt at higher rates.
An increase in insolvency filings by smaller firms could be a normalization after years of below-average filings as pandemic supports expire.
In non-bank financial sector, some firms are increasing their use of leverage to fund trading activities; which makes them more vulnerable to large market swings
Overall credit performance of canadian banks remains strong.
