Canada’s banks capable of withstanding an economic shock: report

The big Canadian banks have improved their funding and liquidity positions since the financial crisis and are capable of absorbing a severe economic shock, DBRS Ltd. says in a new report.

The rating agency’s assessment of the Big Six banks found that they already meet or exceed the new global liquidity standards, which were bolstered in response to the financial crisis.

DBRS also reported that the big banks are poised to meet the new net stable funding ratio requirements in 2021.

“Since the financial crisis of 2007–08, the large Canadian banks have improved their funding and liquidity profiles by increasing their holdings of unencumbered liquid assets and ensuring that their mix of funding is well diversified,” the report said.

DBRS noted that almost half of the banks’ funding comes from stable deposits, coupled with various forms of wholesale funding.

DBRS also found that the banks have enhanced their access to liquid assets and have done a better job of matching the maturities of their assets and liabilities.

“As a result, we view the large Canadian banks as well positioned to deal with any unforeseen shock in wholesale funding markets or a severe economic downturn,” the report concluded.

Any weakening in banks’ liquidity positions could lead to negative rating pressure, DBRS said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.