Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Financial Sector Assessment Program (FSAP) [1] with Canada on July 18, 2025 without convening formal discussions. [2] The Financial System Stability Assessment (FSSA) report was completed on July 1, 2025. The report is based on the work of IMF FSAP missions to Canada during October-November 2024 and February 2025.
Canada has a large and highly developed financial system. The banking system is concentrated with six systemically important banks accounting for 94 percent of total banking assets. Nonbank financial institutions (NBFIs) are also important and include mutual and pension funds and insurance firms. The FSAP was conducted amid slowing economic growth, trade policy uncertainty, and heightened geopolitical risks.
Canada's financial system is strong and well-regulated and has demonstrated resilience in recent years. Stress tests indicate that banks and NBFIs are generally resilient to severe solvency and liquidity shocks. Nonetheless, their substantial exposure to residential real estate warrants close monitoring due to risks related to debt serviceability and high household debt. Commercial real estate risks appear manageable for large banks but remain significant for pension funds and insurers. Intensifying geoeconomic fragmentation and mounting trade risks could weigh on economic growth, unemployment, and real estate valuations. The interconnectedness of the Canadian financial sector with global markets amplifies these risks.
While financial sector oversight and crisis management frameworks are robust, they could be further strengthened to proactively address emerging challenges. Enhancing cooperation and information sharing between federal and provincial authorities is essential to effectively monitor risks across the financial sector, particularly concerning NBFIs. Also, there is scope to strengthen data collection and stress testing practices for NBFIs. Supervisory authorities follow a sound risk-based approach focused on key priorities. However, further clarification of their mandates, enhanced budgetary autonomy and strengthened resources would support more effective oversight. The authorities have made notable progress in bolstering cyber resilience and advancing climate risk analysis, and are encouraged to continue building on these achievements. Enhancing Anti-Money Laundering/ Combating the Financing of Terrorism (AML/CFT) supervision and enforcement remains a priority, and the authorities' commitment to reviewing the AML/CFT sanctioning regime is welcome. Greater harmonization of deposit insurance schemes across jurisdictions would be beneficial. The authorities are also encouraged to further strengthen the resolution framework for insurers.
[1] The Financial Sector Assessment Program (FSAP), established in 1999, is a comprehensive and in-depth assessment of a country's financial sector. FSAPs provide input for Article IV consultations and thus enhance Fund surveillance. FSAPs are mandatory for the 47 jurisdictions with systemically important financial sectors and otherwise conducted upon request from member countries. The key findings of an FSAP are summarized in a Financial System Stability Assessment (FSSA).
[2] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.
