Overview
Over the past year, financial conditions have tightened globally in response to monetary policy actions aimed at reducing inflation. Recent stresses in the banking sector in the United States and Switzerland further tightened financial conditions. Authorities in these countries reacted swiftly, limiting the spillover effects to the broader financial system.
These events have exposed vulnerabilities—notably, business models that rely excessively on an environment of low interest rates and low volatility—and serve as a reminder that risks can emerge and spread quickly. As the financial sector adjusts to higher interest rates, participants, regulators and central banks must be more vigilant about vulnerabilities and risks.
Canadian regulators have taken important steps to help safeguard the financial system. Canadian banks remain robust, but they are not immune to…
