Canada: Financial Sector Assessment Program-Stress Testing-Technical Note
IMF Staff Country Reports, March 7, 2014
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- Canonical URL
- Canada: Financial Sector Assessment Program-Stress Testing-Technical Note
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Bibliographic details
- Published: March 7, 2014
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781475523096.002
Overview
- Publication date: March 7, 2014
- Type: IMF Staff Country Reports (Country Report No. 2014/069, Issue 069)
- Pages: 101
- Volume: 2014
- DOI: https://doi.org/10.5089/9781475523096.002
- Stock No: 1CANEA2014007
- ISBN: 9781475523096
- ISSN: 1934-7685
- Central aim: Examine the stress testing module of the 2013 Financial Sector Assessment Program (FSAP) update for Canada, assessing coverage, results, and actionable recommendations for authorities.
Major themes and scope
- Coverage:
- The stress tests covered three major segments of the domestic financial system.
- Focus areas:
- Bank solvency stress testing.
- Assessment of recapitalization needs under severe economic distress.
- Enhancement of individual components of the Canadian stress testing framework.
- Subject categories: Banking; Credit; Credit risk; Financial institutions; Financial regulation and supervision; Financial sector policy and analysis; Loans; Money; National accounts; Personal income; Stress testing.
- Keywords retained: balance sheet, base year, capital ratio, CR, Credit, credit loss, Credit risk, Europe, Global, income statement, interest rate, ISCR, liquidity risk, Loans, net income, Personal income, Stress testing.
Key findings
- Bank solvency results:
- All banks would fall below the Canadian “all-in” Common Equity Tier 1 (CET1) supervisory threshold during severe economic distress.
- Despite breaches of the CET1 supervisory threshold, the resulting recapitalization needs are described as manageable.
- Structural implication:
- Stress testing highlighted systemic vulnerabilities in severe scenarios but indicated feasible policy responses to restore capital adequacy.
Policy recommendations (derived from the joint IMF–Canadian authorities exercise)
- Strengthen individual components of the stress testing framework to improve robustness and transparency.
- Enhance the design and calibration of scenarios to capture severe economic distress that pushes CET1 ratios below supervisory thresholds.
- Develop operational plans for manageable recapitalization to address breaches of the “all-in” CET1 supervisory threshold.
- Improve integration of stress testing outputs into supervisory and macroprudential policy decision-making.
Analytical and technical notes
- The technical note documents methods and outcomes of the 2013 FSAP stress-testing module for Canada.
- Emphasis on reconciling bank-level solvency outcomes with system-wide recapitalization strategies.
International Monetary Fund. Canada: Financial Sector Assessment Program-Stress Testing-Technical Note (IMF Staff Country Reports 2014, 069).