The Bank of Canada (BoC) says the financial system is in good shape, but vulnerabilities are rising amid a volatile economic and geopolitical environment.
"Our overall view is that the Canadian financial system remains well positioned to weather shocks," Senior Deputy Governor Carolyn Rogers said. "However, vulnerabilities have increased in some parts of the system."
Governor Tiff Macklem was absent due to an urgent personal matter. The annual report assesses financial markets and highlights risks to economic resilience.
The economy has faced U.S. President Donald Trump's tariffs, disrupting jobs and production in key sectors.
High stock valuations, higher corporate debt, and hedge funds borrowing to buy sovereign debt are key vulnerabilities. Rogers warned that increased volatility could trigger several vulnerabilities simultaneously.
Risks include the North American trade deal review and oil shock from the Iran war. Last year, Macklem highlighted risks of a prolonged trade war with the U.S.
"So far, impacts have been less widespread than feared," Rogers said. Deputy Governor Toni Gravelle noted household debt payment delays have stabilized, and the mortgage renewal wave should pass by mid-2027.
Major Canadian banks report higher profitability and capital buffers, indicating robust financial health.
