The Bank of Canada released its 2026 Financial System Report on Thursday, concluding that Canada’s financial system continues to exhibit resilience even as certain risks have grown.
Senior Deputy Governor Carolyn Rogers and Deputy Governor Toni Gravelle presented the report, which is designed to evaluate risks to the financial system rather than to forecast economic growth or to advise on interest rate policy. The document points to several areas of elevated vulnerability that could increase the system’s sensitivity to shocks.
Market valuation metrics for equities and corporate debt have climbed to unusually high levels compared with historical norms, the report states, leaving markets more exposed to abrupt corrections. The Bank also highlights a growing presence of hedge funds as buyers of global sovereign debt. Many of these funds are using borrowed money to finance purchases, a practice that the report warns could amplify stress and create disruptions in core funding markets if market conditions turn strained.
On household finances, the report observes that Canadians continue to carry relatively high levels of debt compared with income. At the same time, overall household wealth has increased and the proportion of borrowers falling behind on payments has stabilized. The Bank says most borrowers have navigated payment shocks associated with the renewal of pandemic-era mortgages without major issues. It expects the final wave of mortgage renewals to occur over the next 12 months and indicates that this risk should fully pass by the second half of 2027.
Large Canadian banks have, according to the report, bolstered their resilience. Profitability has risen and capital buffers are healthy, while institutions have also set aside additional funds to absorb potential loan losses. The financial health of businesses is described as broadly stable, even in industries most exposed to shifts in United States trade policy.
The Financial System Survey, which informed parts of the report, was completed by 54 respondents between February 23 and March 13, 2026. Compared with the 2025 iteration, respondents indicated a reduced likelihood that shocks would materially impair the financial system.
International economic and political developments top the list of concerns, with respondents pointing to geopolitical conflicts and the risk of trade fragmentation around the upcoming Canada-United States-Mexico Agreement review as principal sources of uncertainty. The survey also captured near-universal adoption of artificial intelligence among respondents. Most reported limited to moderate current use of AI for information gathering, analysis and internal operations, and they expect to expand AI applications over the next two years in areas including investment management, operational workflows and prevention of financial crime.
The Bank’s assessment frames a financial system that has strengthened in important ways while remaining exposed to specific, identifiable pressures. Elevated asset valuations and leveraged activity in sovereign debt markets are prominent vulnerabilities, while household indebtedness and international political risks remain watch points. At the same time, stronger bank capital positions and broadly stable corporate finances contribute to the overall resilience the Bank reports.