Take an in-depth look at the indicators related to financial stability.
Households
Household indebtedness and home equity
Characteristics of mortgage originations
Mortgages with a loan-to-value ratio greater than 80% must be insured. Mortgages with a loan-to-value ratio of 80% or less are typically uninsured, but a small portion of these mortgages are insured. However, these do not have a material impact on the plotted series. Uninsured mortgages may be portfolio-insured by the lender after the loan is originated if the loan meets insurance standards. The split used here (insured versus uninsured) refers to whether the loan is transactionally insured at origination.
The number of mortgages originated is calculated as the total number of mortgages originated each quarter (not annualized).
The number of mortgages originated during a given quarter includes insured mortgages issued by all lenders and all uninsured mortgages issued by federally regulated financial institutions (which comprise banks, trusts and loan companies, but exclude credit unions, private lenders and mortgage financing corporations). Bank of Canada staff seasonally adjust the number of mortgages originated using an X-13 procedure. Other data series are not seasonally adjusted.
Mortgage interest rates reported from March 2017 onward are calculated as the median of the best broker-offered rates from each lender (data provided by Lender Spotlight). Before March 2017, the mortgage rate series were constructed by averaging the best high-ratio mortgage rates offered by six individual brokers (Mortgage Alliance, Invis, Super Brokers [CanEquity], Dominion Lending Centres, Select Mortgage Corporation and MonsterMortgage.ca), collected by the Bank of Canada from their websites.
Data sources:
- For all data except mortgage interest rates—regulatory filings of Canadian banks, Department of Finance Canada and Bank of Canada calculations
- For mortgage interest rates—Lender Spotlight, brokers’ websites and Bank of Canada calculations
Loan-to-income ratio
The loan-to-income ratio uses data from the time of mortgage application. For mortgage and HELOC combined products, this ratio includes all the drawn amounts from each of the subcomponent. Income is the reported gross income used for mortgage qualification.
Data sorted by type of homebuyer include home purchases originated by federally regulated financial institutions (FRFIs). All other data include both purchases and refinancing originated by FRFIs for uninsured mortgages and all lenders for insured mortgages.
Mortgages with a loan-to-value ratio greater than 80% must be insured. Mortgages with a loan-to-value ratio of 80% or less are typically uninsured, but a small portion of these mortgages are insured. However, these do not have a material impact on the plotted series. Uninsured mortgages may be portfolio-insured by the lender after the loan is originated if the loan meets insurance standards. The split used here (insured versus uninsured) refers to whether the loan is transactionally insured at origination.
The types of homebuyers are first-time homebuyers, repeat homebuyers and investors (as defined in Khan and Xu 2022). The share of new mortgages by homebuyer type includes only mortgages originated for purchase (i.e., they exclude mortgage refinancing) and are calculated for eight lenders whose data are available in both TransUnion and regulatory datasets. All series reported by type of homebuyer have a publication lag of one quarter relative to other series due to the process used to identify the types of homebuyers.
To protect the privacy of Canadians, TransUnion did not provide any personal information to the Bank. The TransUnion dataset was anonymized, meaning it does not include information that identifies individual Canadians, such as names, social insurance numbers or addresses.
Data series are not seasonally adjusted.
Data sources: Regulatory filings of Canadian banks, TransUnion, Department of Finance Canada and Bank of Canada calculations
Loan-to-value ratio
The loan-to-value (LTV) ratio is measured at the time of mortgage application. For mortgage and HELOC combined products, this ratio includes all the authorized amounts from each of the subcomponent.
Data sorted by type of homebuyer include home purchases originated by federally regulated financial institutions (FRFIs). All other data include both purchases and refinancing originated by FRFIs for uninsured mortgages and all lenders for insured mortgages.
The Bank reports the average rather than the median LTV ratio because of the important clustering of values around 65%, 80% and 95%.
The types of homebuyers are first-time homebuyers, repeat homebuyers and investors (as defined in Khan and Xu 2022). The share of new mortgages by homebuyer type includes only mortgages originated for purchase (i.e., they exclude mortgage refinancing) and are calculated for eight lenders whose data are available in both TransUnion and regulatory datasets. All series reported by type of homebuyer have a publication lag of one quarter relative to other series due to the process used to identify the types of homebuyers.
To protect the privacy of Canadians, TransUnion did not provide any personal information to the Bank. The TransUnion dataset was anonymized, meaning it does not include information that identifies individual Canadians, such as names, social insurance numbers or addresses.
Data series are not seasonally adjusted.
Data sources: Regulatory filings of Canadian banks, TransUnion, Department of Finance Canada and Bank of Canada calculations
Mortgage debt service ratio
The mortgage debt service ratio (DSR) is measured at the time of mortgage application. The mortgage DSR is calculated as the monthly mortgage payment (assuming semi-annual compounding and monthly payments) divided by the reported income used for mortgage qualification.
Data sorted by type of homebuyer include home purchases originated by federally regulated financial institutions (FRFIs). All other data include both purchases and refinancing originated by FRFIs for uninsured mortgages and all lenders for insured mortgages.
Mortgages with a loan-to-value ratio greater than 80% must be insured. Mortgages with a loan-to-value ratio of 80% or less are typically uninsured, but a small portion of these mortgages are insured. However, these do not have a material impact on the plotted series. Uninsured mortgages may be portfolio-insured by the lender after the loan is originated if the loan meets insurance standards. The split used here (insured versus uninsured) refers to whether the loan is transactionally insured at origination.
The types of homebuyers are first-time homebuyers, repeat homebuyers and investors (as defined in Khan and Xu 2022). The share of new mortgages by homebuyer type includes only mortgages originated for purchase (i.e., they exclude mortgage refinancing) and are calculated for eight lenders whose data are available in both TransUnion and regulatory datasets. All series reported by type of homebuyer have a publication lag of one quarter relative to other series due to the process used to identify the types of homebuyers.
To protect the privacy of Canadians, TransUnion did not provide any personal information to the Bank. The TransUnion dataset was anonymized, meaning it does not include information that identifies individual Canadians, such as names, social insurance numbers or addresses.
Data series are not seasonally adjusted.
Data sources: Regulatory filings of Canadian banks, TransUnion, Department of Finance Canada and Bank of Canada calculations
Ability of households to repay their debt
Household credit performance
To protect the privacy of Canadians, TransUnion did not provide any personal information to the Bank. The TransUnion dataset was anonymized, meaning it does not include information that identifies individual Canadians, such as names, social insurance numbers or addresses.
Bank of Canada staff seasonally adjust the arrears rates using an X-13 procedure.
Data sources: TransUnion and Bank of Canada calculations
Reliance on and use of credit cards
Credit card use is calculated by dividing the balance on the card by the borrower’s credit limit. We report the average use across borrowers. Credit card use reveals how heavily a household relies on borrowed money to pay for its daily expenses. A high rate of use suggests that households may be relying heavily on credit to meet expenses, which can signal financial stress and increase the risk of future loan defaults (Xiao 2024 and Zhao).
To protect the privacy of Canadians, TransUnion did not provide any personal information to the Bank. The TransUnion dataset was anonymized, meaning it does not include information that identifies individual Canadians, such as names, social insurance numbers or addresses.
Data sources: TransUnion and Bank of Canada calculations
Bank of Canada staff seasonally adjust the use rates and arrears rates using an X-13 procedure.
Health of the housing market
Resale market activity and prices
All data series are seasonally adjusted by the Canadian Real Estate Association (CREA). Values are not available for download, reflecting the licencing agreement between the Bank of Canada and CREA.
Data sources: Canadian Real Estate Association and Bank of Canada calculations
Types of mortgaged homebuyers
The types of homebuyers are first-time homebuyers, repeat homebuyers and investors (as defined in Khan and Xu 2022). The share of new mortgages by homebuyer type includes only mortgages originated for purchase (i.e., they exclude mortgage refinancing) and are calculated for eight lenders whose data are available in both TransUnion and regulatory datasets. All series reported by type of homebuyer have a publication lag of one quarter relative to other series due to the process used to identify the types of homebuyers.
These numbers generally include cottages and other recreational properties as well as homes purchased by house flippers. These numbers exclude purchases made by foreign buyers (unless the foreign buyer acquired the property using a mortgage at a Canadian federally regulated financial institution), cash purchases, and transactions financed by a mortgage originated by a provincially regulated, unregulated or private lender.
Data series are not seasonally adjusted but are expressed as a 12-month moving average, which typically removes any seasonal patterns.
To protect the privacy of Canadians, TransUnion did not provide any personal information to the Bank. The TransUnion dataset was anonymized, meaning it does not include information that identifies individual Canadians, such as names, social insurance numbers or addresses.
Data sources: Regulatory filings of Canadian banks, TransUnion and Bank of Canada calculations
House-flipping activity
Data series are not seasonally adjusted but are expressed as a 12-month moving average, which typically removes any seasonal patterns.
Data sources: Teranet, National Bank and Bank of Canada calculations
House price expectations
These indicators are derived from the Canadian Survey of Consumer Expectations, which is conducted on a quarterly basis by the Bank of Canada.
Data series are not seasonally adjusted.
Data sources: Bank of Canada and Bank of Canada calculations
Non-financial businesses
Leverage
Data for the debt and cash holdings of non-financial corporations are taken from Statistics Canada’s National Balance Sheet Accounts (Table 36-10-0580-01). Data for gross domestic product (GDP) are taken from the System of National Accounts (Table 36-10-0104-01). All series are seasonally adjusted by Statistics Canada.
The ratio of corporate debt to GDP is calculated by dividing total non-financial corporate debt by nominal GDP. Net debt-to-GDP is calculated by subtracting the deposits of non-financial corporations from their debt before dividing by nominal GDP. This provides an important alternative view of leverage in the economy because cash is highly liquid and can be used to repay debts quickly.
Data sources: Statistics Canada and Bank of Canada calculations
Debt serviceability
Data for income and interest expenses are taken from Statistics Canada’s Quarterly Survey of Financial Statements (Table 33-10-0225-01). These data are not seasonally adjusted. Debt-serving costs are calculated as quarterly income before interest, taxes, depreciation and amortization divided by quarterly interest expenses.
Data sources: Statistics Canada and Bank of Canada calculations
Profitability
Data are taken from Statistics Canada’s Quarterly Survey of Financial Statements (QSFS) (Table 33-10-0225-01). These series are not seasonally adjusted. Profitability is calculated as quarterly income before interest and taxes divided by quarterly total revenues.
Data sources: Statistics Canada and Bank of Canada calculations
Liquidity
Data for the cash holdings and total liabilities of non-financial corporations are taken from Statistics Canada’s National Balance Sheet Accounts (Table 36-10-0580-01). These series are seasonally adjusted by Statistics Canada.
Liquidity is calculated by dividing the total cash holdings of non-financial corporations by these corporations’ total liabilities.
Data sources: Statistics Canada and Bank of Canada calculations
Business credit performance
Loan data are taken from the A2 regulatory returns collected by the Office of the Superintendent of Financial Institutions. These data capture all non-mortgage loans issued by federally regulated financial institutions. These series are not seasonally adjusted. The impairment rate is the sum of all credit-impaired loans for non-financial industries divided by the sum of all outstanding loan balances for non-financial industries.
Data for business insolvencies are taken from the Office of the Superintendent of Bankruptcy. These series are not seasonally adjusted and reflect the number of non-financial businesses filing for insolvency under the Bankruptcy and Insolvency Act. Insolvency can take two forms:
- a proposal—a struggling business works with its creditors to restructure debts and develop a plan for debt repayment
- bankruptcy—a business permanently closes its doors and must sell its assets to repay its creditors
Data sources: Regulatory filings of Canadian banks, Office of the Superintendent of Bankruptcy and Bank of Canada calculations
Banks
Capital adequacy
The Common Equity Tier 1 (CET1) capital ratio is a risk-based capital ratio defined as CET1 capital to total risk-weighted assets.
The leverage ratio is defined as Tier 1 capital—comprising CET1 capital and Additional Tier 1 instruments—divided by the exposure measure—comprising on-balance sheet exposures, derivative exposures, securities financing transaction exposures and off-balance sheet items. The ratio is expressed as a percentage.
For more details on the CET1 capital and the leverage ratios, see the Office of the Superintendent of Financial Institutions’ Capital Adequacy Requirements Guideline and Leverage Requirements Guideline.
Domestic systemically important banks include the Canadian Imperial Bank of Commerce, Royal Bank of Canada, Bank of Montreal, Toronto-Dominion Bank, Bank of Nova Scotia and National Bank of Canada.
Small and medium-sized banks include all federally regulated deposit-taking institutions with assets greater than Can$1 billion.
Data sources: Regulatory filings of Canadian banks and Bank of Canada calculations
Asset quality
The gross impaired-loan ratio measures the share of a bank’s total loan portfolio that is classified as credit-impaired. Under the International Financial Reporting Standard 9 (IFRS 9), credit-impaired refers to exposures in Stage 3—loans for which objective evidence of impairment exists (e.g., default, bankruptcy or severe delinquency).
The provision for credit losses (PCL) ratio measures the provisions recognized for expected credit losses (expressed on a flow basis) relative to average loans. Under IFRS 9, the PCL arises from the expected credit loss model. Average loans are calculated by dividing the average value of total loans at the end of the month for each of the three months in the fiscal quarter.
Domestic systemically important banks include the Canadian Imperial Bank of Commerce, Royal Bank of Canada, Bank of Montreal, Toronto-Dominion Bank, Bank of Nova Scotia and National Bank of Canada.
Small and medium-sized banks include all federally regulated deposit-taking institutions with assets greater than Can$1 billion.
Data sources: Regulatory filings of Canadian banks and Bank of Canada calculations
Profitability
The return on assets is measured as the ratio of quarter net income attributable to common shareholders to the average total assets. Average total assets is the average value of total assets at the end of the month for each of the three months in the fiscal quarter.
The return on equity is measured as the ratio of quarterly net income attributable to common shareholders to the average shareholders’ equity. Average equity is calculated as the average value of shareholders’ equity at the end of the month for each of the three months in the fiscal quarter.
Domestic systemically important banks include the Canadian Imperial Bank of Commerce, Royal Bank of Canada, Bank of Montreal, Toronto-Dominion Bank, Bank of Nova Scotia and National Bank of Canada.
Small and medium-sized banks include all federally regulated deposit-taking institutions with assets greater than Can$1 billion.
Data sources: Regulatory filings of Canadian banks and Bank of Canada calculations
Liquidity
The net stable funding ratio (NSFR) is the amount of available stable funding relative to the amount of required stable funding. Available stable funding is the portion of capital and liabilities expected to be reliable over the time horizon considered by the NSFR, which extends to one year. The amount of available stable funding required (required stable funding) for a specific institution is a function of the liquidity characteristics and residual maturities of the various assets held by that institution as well as those of its off-balance sheet exposures.
The liquidity coverage ratio is defined as the value of the stock of high-quality liquid assets plus eligible non-operational demand and overnight deposits divided by the total net cash outflows. The ratio is calculated based on a period of significant liquidity stress lasting 30 days.
For more details on these measures, see the Office of the Superintendent of Financial Institutions’ Liquidity Adequacy Requirements Guideline.
Domestic systemically important banks include the Canadian Imperial Bank of Commerce, Royal Bank of Canada, Bank of Montreal, Toronto-Dominion Bank, Bank of Nova Scotia and National Bank of Canada.
Small and medium-sized banks include all federally regulated deposit-taking institutions with assets greater than Can$1 billion.
Data sources: Regulatory filings of Canadian banks and Bank of Canada calculations
Financial markets
Market liquidity
The bid-ask and price-impact proxies are calculated using data from the Market Trade Reporting System. The bid-ask spread proxy is twice the square root of the negative covariance between adjacent price changes. The price-impact proxy is calculated as the ratio of the absolute value of the price change to the dollar value, in millions, of trading volume. The proxies are calculated separately for Government of Canada and provincial bonds. They are calculated each day for each bond and are aggregated across different bonds by taking the median. The daily data are further aggregated into weekly data by taking the median across each week.
Data sources: Market Trade Reporting System and Bank of Canada calculations
Yield volatility is calculated as the 20-day rolling standard deviation of changes in the 10-year Government of Canada benchmark bond yield.
Data sources: LSEG Datastream and Bank of Canada calculations
The exchange-traded fund (ETF)–based proxy of Canadian corporate bond market liquidity (ECML) is based on the difference between an ETF’s price and its net asset value. It is calculated separately for different ETFs that primarily hold Canadian corporate bonds and is aggregated across ETFs by taking the asset-weighted average.
ECML is measured in percent. It is calculated by multiplying by -100 the logarithm of an ETF’s net asset value divided by its net asset value plus the absolute difference between the ETF’s price and its net asset value.
Data sources: LSEG Datastream and Bank of Canada calculations
Trading activity
Trading volume metrics are the sum of trading volumes across all market participants on each day. To smooth the series, we take the 10-day moving average. These metrics are calculated separately for Government of Canada, provincial and corporate bonds.
Data sources: Market Trade Reporting System and Bank of Canada calculations
Overall financial system
Financial stress
The index is an updated version of Duprey (2020) with two main methodological differences. First, the index is now calculated jointly for the United States and Canada: the magnitude of each stress component for Canada is now benchmarked against historical and comparable data in both Canada and the United States. Second, the index now uses weights only based on correlations across market segments: markets that typically move strongly alongside other markets get more weight in the index.
Data sources: LSEG Datastream, Statistics Canada and Bank of Canada calculations
References
Duprey, T. 2020. “Canadian Financial Stress and Macroeconomic Conditions.” Bank of Canada Staff Discussion Paper No. 2020-4.
Khan, M. and Y. Xu. 2022. “Housing demand in Canada: A novel approach to classifying mortgaged homebuyers.” Bank of Canada Staff Analytical Note No. 2022-1.
Xiao, J. Q. 2024. “The Reliance of Canadians on Credit Card Debt as a Predictor of Financial Stress.” Bank of Canada Staff Analytical Note No. 2024-18.