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Canada’s financial system is resilient. Overall, households, businesses, banks and non-bank financial intermediaries successfully weathered the pandemic, a period of elevated inflation, and sharp increases in interest rates. But the trade war currently threatens the Canadian economy and poses risks to financial stability.

Canada’s financial system remains resilient. Over the past year, households, businesses, banks and non-bank financial institutions have continued to proactively adjust to higher interest rates. But this adjustment is not yet over and continues to present risks to financial stability. Key risks include those related to debt serviceability and asset valuations.

The adjustment to higher interest rates is exposing vulnerabilities in the global financial system. Recent banking sector stresses serve as a reminder that risks can arise and spread quickly. Key areas of concern are bank funding, liquidity in fixed income markets, and households’ ability to service their debts. Other financial system concerns relate to cyber attacks, climate change and cryptoasset markets.

The Canadian financial system remains resilient, but vulnerabilities have become more complex and risks have grown. The Bank is carefully watching households’ high levels of mortgage debt, as well as the risks associated with a price correction in Canada’s housing market.

The Canadian financial system proved resilient during the COVID-19 pandemic—thanks to strong risk management and unprecedented fiscal and monetary policy support.