Financial stability indicators

Get quarterly data for the indicators we monitor to assess the stability of Canada’s financial system. For metadata and background information, see the notes.

Updated: December 19, 2025

Note: As of December 2025, we have expanded the range of financial stability indicators to provide a more comprehensive overview of conditions in Canada’s financial system. This update introduces new indicators across five key areas:

• households
• non-financial businesses
• banks
• financial markets
• the overall financial system

These enhancements reflect the Bank of Canada’s commitment to being transparent and improving the depth of our analysis. They also align this webpage more closely with the Bank’s framework for assessing financial stability and the Financial Stability Report.

The Bank of Canada promotes the country’s economic and financial welfare by fostering a stable and efficient financial system. To achieve this, the Bank continuously monitors key areas of the system—households, non-financial businesses, banks, non-bank financial intermediaries and financial markets—for potential sources of instability. This monitoring involves tracking a comprehensive set of indicators that provide insights into the overall health and stability of the system. This page presents many of these indicators.

The indicators will be updated quarterly in each of the following months:

• March (showing data from the fourth quarter of the previous year)
• June (showing first-quarter data)
• September (showing second-quarter data)
• December (showing third-quarter data)

Publication dates may vary depending on data availability. Data are subject to revisions.

Households

Households are a vital pillar of the financial system because they provide deposits to banks and obtain loans from them. When households carry large debt relative to their income and have low equity in their house, they are more vulnerable to default if they experience a drop in income. A substantial change in household financial health could therefore have important implications for banks and financial stability.

The health of the housing market is equally important for the stability of the financial system. A home often represents a household’s biggest asset and the primary source of debt. If house prices fall, household wealth is reduced instantly, sometimes leaving homeowners owing more than the house is worth (negative equity). This drop in collateral value and surge in potential defaults can affect the solvency of banks.

This is why we closely follow developments related to the indebtedness and equity of households, their ability to repay their loans on time and the health of the housing market.

Household indebtedness and home equity

Characteristics of mortgage originations

When a homebuyer obtains a new mortgage to purchase a house, the characteristics of the transaction can vary:

• Mortgage insurance status—Some mortgages must be insured, while others do not have to be. Homebuyers who have a down payment of less than 20% must obtain insurance on their mortgage.
• Type of interest rate and length of term—A mortgage can have either a variable or a fixed interest rate, and the number of years before the mortgage must be renewed with the lender—known as the term—can vary.
• Amortization period—The length of time it takes to pay off a mortgage in full.
• Mortgage interest rate—The specific rate of interest charged depends on whether a mortgage has a fixed or variable interest rate.

For more information, see the notes.

Loan-to-income ratio

The loan-to-income (LTI) ratio is a measure of initial affordability. It is calculated when a new mortgage is issued and compares the size of the mortgage to the gross income stated by the homebuyer when they qualified for the mortgage. Research by Bank of Canada staff found that, all else being equal, homebuyers with higher LTI ratios are more vulnerable to financial stress (Bilyk, Chow and Xu 2021). This means that highly indebted homebuyers are more likely to fall behind on debt payments if they experience a negative income shock or a rise in mortgage interest rates. The Bank uses the share of new mortgages with an LTI ratio greater than 450% to identify the most vulnerable households.

For more information, see the notes.

Loan-to-value ratio

The loan-to-value (LTV) ratio is a measure of the initial equity stake that a homebuyer has in their house. It is calculated when a new mortgage is issued and compares the size of the mortgage to the market value of the property. For a mortgage-HELOC combined product, the LTV ratio captures the total authorized amount on the HELOC component, including any undrawn credit. The smaller the down payment made by the homebuyer relative to the purchase price, the higher the LTV ratio.

Homebuyers can borrow up to 95% of the value of their home (excluding the mortgage insurance premium, which is added to the value of the loan after approval). However, borrowers with an LTV ratio greater than 80% must obtain insurance on their mortgage and are not eligible for mortgage refinancing.

Research by Bank of Canada staff found that, all else being equal, homebuyers with higher LTV ratios are more vulnerable to financial stress (Bilyk, Chow and Xu 2021). In other words, they are more likely to fall behind on debt payments in the event of a negative income shock or a rise in mortgage interest rates.

For more information, see the notes.

Mortgage debt service ratio

The mortgage debt service ratio (DSR) measures the share of income a homebuyer dedicates to their mortgage debt payments. All else being equal, a household that spends a large portion of its income on mortgage payments may be more vulnerable to financial stress—it may be more likely to fall behind on debt payments if a negative income shock or a rise in mortgage interest rates were to occur. The Bank uses the share of new mortgages with a mortgage DSR greater than 25% to identify the most vulnerable households.

For more information, see the notes.

Ability of households to repay their debt

Household credit performance

Tracking households that are having difficulty making debt payments provides a good indicator of household financial strain.

A common measure of borrowers’ financial stress is the share of indebted households that are behind on payments for at least 60 days in any credit category. Credit categories include mortgages, credit cards, loans (automobile and other) and lines of credit (secured and unsecured). Because mortgages are typically the last product to go into arrears, missed payments on other types of debt can be early signs of financial distress.

Borrower arrears rates are defined as the share of borrowers who have at least one account, of any type, with payments late by 60 days or more. Product type arrears rates are defined as the share of loans in a given product class with payments late by 90 days or more.

For more information, see the notes.

Reliance on and use of credit cards

Research by Bank of Canada staff finds that Canadians who rely more heavily on credit card debt are more likely to experience financial stress in the near term (Xiao 2024). Specifically, those who maintain high rates of credit card use—defined as the ratio of outstanding balance to authorized credit limit—and those who miss payments are more likely to become delinquent on mortgage payments, which constitutes a more significant financial event.

For more information, see the notes.

Health of the housing market

Resale market activity and prices

The Canadian Real Estate Association compiles monthly statistics on the resale market in Canada through its Multiple Listing Service (MLS^®). These statistics serve as valuable indicators to assess the vigour of the housing market. In particular, the Bank pays close attention to the number of existing residential properties sold in a given month and how the prices for those properties have evolved.

A useful indicator of the balance of supply and demand in the resale market is the ratio of sales to new listings. When the ratio hovers between 40% and 60%, it is a balanced market. When sales outpace the new supply of existing houses for sale and the ratio exceeds 60%, it becomes a seller’s market. Alternatively, when sales are weak relative to new listings and the ratio falls below 40%, it becomes a buyer’s market.

The demand for and supply of resale properties influence resale prices. The Bank regularly tracks many indicators of house prices and monitors the evolution of the MLS^® Home Price Index (HPI) in particular. The HPI benchmark price controls for changes in the composition and quality of houses sold in a given month.

For more information, see the notes.

Types of mortgaged homebuyers

The Bank also looks at the share of mortgage-financed home purchases associated with three types of buyers (as defined in Khan and Xu 2022):

• First-time homebuyers are new homebuyers who have never had a mortgage on their credit file.
• Repeat homebuyers are those who obtain a new mortgage and discharge a previous mortgage.
• Investors are homebuyers who obtain a mortgage to purchase a property while maintaining a mortgage on another property.

As explained in Box 2 of the Bank’s 2022 Financial System Review, the presence of investors in real estate markets can amplify house price cycles. During housing booms, greater demand from investors can add to bidding pressures and intensify price increases. Similarly, when prices are stable or declining, a lower influx of investors can add downward pressure on housing demand and prices.

For more information, see the notes.

House-flipping activity

House flippers are individuals who buy homes and resell them a short time later. Although a rise in house-flipping activity may improve the quality of the housing stock if renovations are involved, it may also signal that a local market is becoming increasingly influenced by speculative behaviour.

The definition used for this indicator is the share of homes resold within either 6 or 12 months of purchase. The data are expressed as a share of the total number of transactions in a geographical area in a given quarter. Data are reported as a 12-month moving average.

For more information, see the notes.

House price expectations

Expectations of growth in house prices collected through the Bank’s Canadian Survey of Consumer Expectations are a useful indicator of the tightness of housing markets. Survey participants are asked what they expect the percentage increase in average home prices in their area to be over the next 12 months. Note, however, that median expectations of growth in house prices from this survey tend to differ significantly from the growth rates of published indexes of house prices. Therefore, focusing on changes in expectations over time rather than on absolute levels is more informative.

For more information, see the notes.

Non-financial businesses

Non-financial businesses interact with the financial system in several ways. They obtain loans from banks and contribute to the ability of households to also secure bank loans by providing income to their employees. Therefore, non-financial businesses play a central role in influencing credit risks that banks face. Beyond the banking sector, large businesses finance part of their operations and capital investments by issuing debt (notably, bonds) and equity shares in capital markets.

Research by Bank of Canada staff finds that businesses that have high leverage, low profitability and low cash reserves are particularly vulnerable to insolvency (Hogg and Jebeli 2025). This is why we closely monitor indicators of business financial health.

Leverage

Businesses borrow money to finance their assets and daily operations. They do so to produce sufficient income to cover their interest payments and other expenses.

The amount of money that businesses borrow relative to the amount of assets they own is called leverage. Leverage can amplify both financial gains and losses for the company and its shareholders. This dual effect increases financial risk and may result in bankruptcy if not managed appropriately.

Measuring the ratio of corporate debt to gross domestic product is a common way to assess financial leverage in an economy. A high ratio suggests that a country’s production relies considerably on corporate debt. This reliance may pose a vulnerability because economic shocks that cause widespread corporate defaults can result in substantial credit losses for lenders and potentially amplify economic downturns.

For more information, see the notes.

Debt serviceability

The interest coverage ratio—defined as earnings divided by interest expenses—is a standard measure of businesses’ ability to manage interest costs. If the ratio is low, it signals a business will have difficulty servicing its debt. For example, a ratio below 1 means that businesses do not generate enough earnings to cover their interest payments, suggesting financial trouble. A high ratio indicates that businesses are in a strong position to manage the cost of their debt obligations.

For more information, see the notes.

Profitability

Profit margins—defined as the ratio of profits over revenues—are a useful gauge of businesses’ financial health. This measure shows the ability of businesses to control costs and efficiently convert sales into earnings. A decline in profit margins may signal that businesses are moving toward financial distress, which could ultimately lead to losses for lenders and investors.

For more information, see the notes.

Liquidity

Liquidity captures businesses’ ability to meet short-term financial obligations without disrupting their core operations. A highly liquid business can manage sudden expenses, absorb unexpected revenue dips and quickly pay creditors, making it resilient to economic shocks.

The cash-to-debt ratio specifically captures this resilience by comparing the most liquid assets (cash and cash equivalents) of a business directly against its total outstanding debt. A higher ratio indicates that the business could, if necessary, pay off either a significant portion or all its debt immediately using only the cash it has on hand, signalling superior financial flexibility and a robust buffer against solvency risks.

For more information, see the notes.

Business credit performance

A healthy corporate sector is one in which businesses show robust financial resilience—the ability to honour their debt obligations and remain solvent. This minimizes credit risk and maintains the stability of the financial system, even through economic turbulence.

A key indicator of the performance of business credit is the share of loans that are past due and unlikely to be repaid (said to be impaired). A rising percentage signals broad financial weakness and a growing risk of default within the corporate sector.

Similarly, businesses could file for insolvency either by using:

• a proposal filing—when businesses work with creditors to restructure their debt
• a bankruptcy filing—when businesses are in financial distress and unable to meet their financial obligations

Rising business insolvencies erode financial stability by causing losses for lenders, suppliers and investors, which tightens credit conditions and slows overall economic activity.

For more information, see the notes.

Banks

Banks play many critical roles in the financial system. They channel funds from savers to borrowers, facilitate payments and support the functioning of financial markets through their trading and market-making activities. If banks face a shock that weakens their financial position—for example, if many households or businesses cannot repay their loans—banks may be unable or unwilling to provide loans and other financial services. This could have serious consequences for the overall financial system and the economy.

Capital adequacy

Capital adequacy represents a bank’s capacity to absorb financial losses. Strong capital—such as shareholder equity and undistributed profits—acts as a safety net: it allows banks to absorb major unexpected losses from bad loans or market downturns without failing, thereby ensuring the continuity of essential financial services and reducing the risk of contagion to other financial institutions. This essential capacity is primarily captured by two distinct regulatory measures:

• The Common Equity Tier 1 capital ratio focuses on the highest quality of regulatory capital—such as common equity and retained earnings—that can absorb losses as they arise while the bank continues to operate. The ratio compares a bank’s core equity to its total risk-weighted assets, ensuring that capital levels are aligned with the riskiness of its portfolio.
• The leverage ratio is a simple non-risk-weighted measure that acts as a crucial backstop to more complex risk-weighted capital ratios. It is calculated by dividing Common Equity Tier 1 capital by the bank’s total exposure measure, providing an objective capital floor that prevents banks from becoming excessively indebted (over-leveraged).

For more information, see the notes.

Asset quality

A bank’s financial health depends largely on the ability of its borrowers to repay their loans. Strong credit quality supports the value of a bank’s assets and limits potential losses. A bank’s financial health is captured by two complementary measures, both as a share of a bank’s total loan book:

• Gross impaired loans are loans that are currently non-performing—meaning the borrowers are significantly past due or unlikely to repay.
• Loan loss provisions are the amounts that a bank sets aside to cover losses on current or future impaired loans, after the bank tries to recoup part of the money.

A low percentage of impaired loans combined with a low level of provisions suggests limited expected credit losses and overall stability in the loan portfolio.

For more information, see the notes.

Profitability

Profitability reflects a bank’s capacity to internally generate the capital needed to absorb losses and to fund growth. This financial health metric is captured by two core indicators:

• Return on assets measures the bank’s operational efficiency by showing how effectively the bank’s management uses total assets (primarily loans) to generate profit. It is calculated by dividing net income by total assets. It reveals the sustainable earning power of the balance sheet, with a higher ratio indicating better core performance.
• Return on equity measures the return generated for the bank’s shareholders. Relative to the return on assets, it also highlights the degree of financial leverage a bank uses to boost shareholder returns: a large gap between a bank’s return on equity and its return on assets suggests a greater reliance on debt to drive profits.

For more information, see the notes.

Liquidity

Banks are required to hold enough liquidity to meet their financial obligations, including through periods of stress, such as high levels of deposit outflows or challenges accessing wholesale funding in a timely manner. A lack of liquidity can quickly trigger a bank run or failure, leading to a financial crisis. This resilience is measured by two complementary standards from the Basel III framework:

• The liquidity coverage ratio measures a bank’s ability to continue to meet its obligations during a short period of acute funding stress. It is defined as the total amount of liquid assets relative to its net cash outflows, adjusted for assumed stressed flow rates. According to the Basel III framework, banks are required to hold enough high-quality liquid assets to cover cash outflows over a severe 30-day stress scenario.
• The net stable funding ratio promotes long-term resilience by ensuring that a bank’s assets are supported by enough stable funding (equity and reliable long-term liabilities), limiting over-reliance on risky short-term wholesale funding.

For more information, see the notes.

Financial markets

Financial instruments such as stocks, bonds and foreign exchange are traded in financial markets. While the primary purpose of financial markets is to facilitate the exchange of funds from lenders to borrowers, some markets—such as those for derivatives—allow for risk management.

The well-functioning of financial markets is critical for financial stability. Financial markets enable risk to be transferred across the financial system, which allows assets to be priced efficiently. It is also mainly through financial markets that the Bank of Canada’s key policy rate influences interest rates and exchange rates. This, in turn, helps the Bank achieve its monetary policy objectives. Markets that function well also allow governments and businesses to secure funding when needed, with less uncertainty.

The Bank closely monitors financial markets and assesses risks to their stability, notably with respect to liquidity in key markets that businesses and governments rely on to finance their activities. In particular, the Bank monitors markets for Government of Canada bonds, provincial bonds and corporate bonds.

Market liquidity

In periods of stress, financial market participants may face greater demand for cash. For example, fund managers may need to pay investors who wish to withdraw their funds and agents using leverage may face margin calls. To generate cash, these agents may want to sell their existing holdings. The ability to sell securities quickly, at a predictable price, is referred to as market liquidity. The Bank of Canada uses several indicators to monitor market liquidity:

• The bid-ask spread of Government of Canada (GoC) bonds and provincial bonds measures the difference between the cost of buying a bond and the return earned from selling that same bond. When the bid-ask spread is small, financial market participants know that they can buy and sell the same bond without incurring large costs, signalling a highly liquid market. The Bank uses the Roll (1984) bid-ask spread proxy to measure this cost.
• The price impact of GoC and provincial bonds measures how much the price of a security moves when a participant buys or sells bonds. When the price impact is low, participants can sell a large quantity of the security, and the price will remain relatively stable. A low price impact indicates that the market is highly liquid because agents can sell a larger quantity of the security without the price falling by too much. The Bank uses the Amihud (2002) price-impact proxy to measure this cost.
• The liquidity of the Canadian corporate bond market is a proxy based on the difference between price and net-asset value of exchange-traded funds that primarily hold Canadian corporate bonds (Arora et al. 2019). Compared with GoC and provincial bonds, corporate bonds trade relatively infrequently, which makes it difficult to use the bid-ask spread and price impact measure to assess the liquidity of the corporate bond market.
• The realized yield volatility of GoC bonds measures the fluctuation of prices for GoC bonds over a specific period. When economic conditions are uncertain, the prices of securities may change more frequently as market participants try to predict the future value of securities. How much the value of a security changes over time is referred to as its volatility. When a security has low volatility, participants—notably investment dealers who trade with clients and then seek to quickly offset their risk—are relatively certain of how much they could get by selling it in the future, which is a sign of a highly liquid market.

For more information, see the notes.

Trading activity

The Bank of Canada monitors the volume of trading activity in three key bond markets:

• Government of Canada bonds
• provincial bonds
• corporate bonds

Higher-than-normal trading activity can indicate that market participants are reacting to new information by changing their bond holdings. For example, many participants may buy bonds to hold safe investments if they believe economic uncertainty is high, or they may sell bonds to generate cash if they require it. A sign of market stability is if market liquidity remains high during periods of higher-than-normal trading activity. Alternatively, a decrease in market liquidity when trading activity is higher than normal can signal market stress.

For more information, see the notes.

Overall financial system

Participants in the financial system—households, non-financial businesses, banks and non-bank financial intermediaries—are highly interconnected. Stress affecting one participant could spread to others:

• directly, through balance sheet exposures
• indirectly, through:
  • common exposures and similarities in business models and risk management practices
  • confidence effects

When assessing financial stability, the Bank of Canada focuses on feedback mechanisms and interconnections between the various participants that can lead to system-wide stress, which may require authorities to intervene.

Financial stress

Systemic financial stress occurs when sharp corrections take place simultaneously across most major markets—such as housing, bond or equity markets. When this happens, investors cannot reduce their risk exposure by simply moving their funds from one market to another because most markets are experiencing turmoil. When this happens, stress can spread and intensify across the entire financial system. These uncommon yet severe conditions may signal the onset of a potential financial crisis.

The Bank of Canada tracks financial stress to help identify episodes when macroeconomic conditions may be more vulnerable to financial disruptions. The Canadian financial stress index (CFSI, Duprey 2020) combines stress indicators across seven broad markets (equities, government bonds, money markets, banking, corporate sector, currencies and housing markets). The CFSI accounts for the relative magnitude of each stress indicator in the United States and the relative magnitude of each market’s co-movements in Canada. Markets that typically move strongly alongside other markets get more weight in the index. The CFSI falls within a range between 0 and 1. A higher number within this range indicates more financial stress.

For more information, see the notes.

References

Al Aboud, O., S. Sheikh, A. Su and Y. Xu. 2025. “Using new loan data to better understand mortgage holders.” Bank of Canada Staff Analytical Note No. 2025-1.

Amihud, Y. 2002. “Illiquidity and Stock Returns: Cross-section and Time-series Effects.” Journal of Financial Markets 5 (1): 31–56.

Arora, R., G. Ouellet Leblanc, J. Sandhu and J. Yang. 2019. “Using Exchange-Traded Funds to Measure Liquidity in the Canadian Corporate Bond Market.” Bank of Canada Staff Analytical Note No. 2019-25.

Bilyk, O., K. Chow and Y. Xu. 2021. “Can the characteristics of new mortgages predict borrowers’ financial stress? Insights from the 2014 oil price decline.” Bank of Canada Staff Analytical Note No. 2021-22.

Duprey, T. 2020. “Canadian Financial Stress and Macroeconomic Conditions.” Bank of Canada Staff Discussion Paper No. 2020-4.

Hogg, D. and H. Jebeli. 2025. “Examining the Links Between Firm Performance and Insolvency.” Bank of Canada Staff Discussion Paper No. 2025-10.

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.

Roll, R. 1984. “A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market.” Journal of Finance, 39 (4): 1127–1139.

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.