IMF FSAP review affirms Canada's financial resilience, flags housing risks

The IMF concluded its 2025 Financial Sector Assessment Program review for Canada, affirming a resilient, well-capitalized banking sector while flagging household debt and housing imbalances. The review's praise for ISSB-aligned climate disclosure and ESG-integrated supervision signals supervisory expectations relevant to Indian regulators advancing climate risk frameworks.

The International Monetary Fund concluded its 2025 Financial Sector Assessment Program (FSAP) review for Canada, part of a standard five-year cycle, reaffirming the financial system's robustness. The Executive Board found Canadian institutions sound and resilient, with large banks well-capitalized, profitable, and holding strong liquidity. Stress testing indicated solvency even under severe adverse scenarios such as sharp property price corrections. The IMF commended the Bank of Canada, the Office of the Superintendent of Financial Institutions (OSFI), and other bodies for macroprudential collaboration, while flagging the housing sector as a key vulnerability.

Canadian banks, regulators, and financial institutions are directly assessed, with the IMF noting elevated household debt and urban housing imbalances as medium-term risks exposing households to interest-rate volatility. Non-bank financial intermediation was flagged for liquidity-risk management. The report praised Canada's climate-related disclosure advances and leadership in adopting ISSB standards, encouraging deeper ESG integration into supervision through granular climate scenario analysis and risk models aligned with net-zero transition pathways, signalling rising supervisory expectations for ESG-aligned financial governance.

The IMF advised continued monitoring and targeted macroprudential measures such as mortgage stress tests and loan-to-income caps to manage systemic risk. It urged enhanced liquidity-risk frameworks, modernised crisis-resolution tools, and improved data-sharing among regulators. Authorities should sustain investment in cybersecurity, digital resilience, and cross-border cooperation with U.S. and G7 counterparts, and refine systemic risk buffers. ESG professionals, regulators, and institutional investors should monitor Canada's evolving ESG-aligned financial risk governance as a model balancing market growth with macroprudential prudence.

Key figure — Review cycle: 2025 FSAP assessment, conducted on a five-year cycle