BoC: effects of banking sector stress were limited

The Bank of Canada has released its Financial System Review (for 2023), which expresses increased concern compared to last year about the ability of households to pay their debts.

In the document, the BoC noted that the spillover effects on Canada from recent stress in the global banking sector have been limited.

Key takeaways

“Bank funding is becoming scarcer and more expensive.”

“Overall, the banking system in Canada remains robust.”

“A severe recession could lead to credit losses for banks.”

“To date, spillover effects in Canada from the recent stresses in the global banking sector have been limited.”

“Higher global interest rates are increasing funding costs for Canadian banks, both in wholesale markets and through a reduction in demand deposits.”

“Future episodes of market stress—if they last long enough—could put additional upward pressure on the cost of funding and reduce banks’ capacity to provide liquidity to market participants.”

“Canadian banks remain robust, but they are not immune to international developments. The reliance of Canada’s large banks on wholesale funding makes them vulnerable to deteriorating conditions in global financial markets.”