Bank of Canada monitoring potential spillovers from banking strains

The Bank of Canada is closely monitoring tensions in the global banking system ahead of its next interest rate decision and release of its monetary policy report in April, a senior central bank official said Wednesday.

In the text of a speech delivered at the National Bank Financial Services Conference, Toni Gravelle, Deputy Governor of the Bank of Canada, assured that the central bank was on the lookout for any potential spillover effect on the real economy from recent banking problems in the United States and Europe.

“We will consider the macroeconomic implications of this evolving situation in our next projection,” said Gravelle.

“In particular, we will be mindful of possible spillover effects into the real economy, as financial conditions tighten and there are broader effects on confidence. »

US regulators had to take control of Silicon Valley Bank and Signature Bank earlier this month to avoid bigger financial problems amid a run on deposits, while Swiss authorities helped UBS to acquire Credit Suisse after it ran into difficulties.

Mr. Gravelle pointed out that global banks are more resilient today than they were 15 years ago when the global financial crisis began.

“With the reforms that have been put in place since the crisis, they have been forced to significantly increase their capital and liquidity reserves. This makes the banking system safer and better able to withstand stress,” he said.

Although the Canadian banking sector has an international reputation for stability, noted Mr. Gravelle, it is not immune to events occurring elsewhere and financial stress outside of Canada can negatively affect things in the country.

The next interest rate decision and monetary policy report from the Bank of Canada are scheduled for April 12.

The central bank kept its key rate unchanged at 4.50% in its March 8 interest rate decision. It was the first time the Bank of Canada did not raise rates since it began raising them in March 2022, in an effort to curb inflation.