Ottawa, February 13th, 2008

Archived - Minister of Finance Welcomes Strong IMF Endorsement of Canada's Financial Sector

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The Honourable Jim Flaherty, Minister of Finance, today welcomed a comprehensive International Monetary Fund (IMF) review that grades Canada's financial sector as one of the most highly developed and sophisticated in the world.

"This positive assessment shows that Canada is demonstrating leadership in the world financial system," said Minister Flaherty. "Despite global uncertainty, Canadians can be confident that their financial sector is stable and well-managed."

Canada is the first Group of Seven (G7) country to undertake the Financial Sector Assessment Program (FSAP) Update, which provides IMF member countries with comprehensive reviews of the stability of their national financial systems. The assessment also rates a country's implementation of a range of regulatory standards and codes.

"The Canadian financial sector is among the world's most highly developed and offers many examples of best practice. The institutions, markets, infrastructure, safety nets, and oversight arrangements that comprise the system are sophisticated, and include a full range of financial intermediaries," the IMF reports.

Minister Flaherty noted that the IMF report should bolster investor confidence amid volatility in global financial markets, that Canada's financial system is solid, and that banks and other financial institutions are sound and well-capitalized.

The IMF report also suggested that moving towards a single securities regulator would allow policy development in Canada to be streamlined, reduce compliance costs and improve enforcement.

"The Government will consider carefully the recommendations of the FSAP Update in further strengthening the efficiency and stability of Canada's financial system," said Minister Flaherty.

A summary of the report's key findings is attached. The report is available on the IMF website at


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Chisholm Pothier
Press Secretary
Office of the Minister of Finance

David Gamble
Media Relations
Department of Finance

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Financial Sector Assessment Program


The Financial Sector Assessment Program (FSAP), established by the International Monetary Fund (IMF) and the World Bank in 1999, is a voluntary program that provides member countries with comprehensive assessments of the stability of their national financial systems. Canada undertook an FSAP assessment during the program's pilot phase in 1999-2000. In September 2006, the Department of Finance formally requested that the IMF undertake an FSAP Update for Canada. The FSAP forms the basis of the Financial System Stability Assessments (FSSAs), in which IMF staff address issues of relevance to IMF surveillance, including risks to macroeconomic stability stemming from the financial sector and the capacity of the sector to absorb macroeconomic shocks. The Canadian regulatory authorities that participated in the review include the Department of Finance, the Bank of Canada, the Office of the Superintendent of Financial Institutions, Canada Deposit Insurance Corporation, the Ontario Securities Commission and the Autorité des marchés financiers. Private sector participants were also consulted on various issues.

In addition to the assessment of the stability of the Canadian financial systems, the FSSA assesses Canada's compliance with two internationally accepted standards and codes for financial sector regulation: the International Organization of Securities Commissions (IOSCO) principles and objectives for securities regulation, and the Committee on Payment and Settlement Systems/IOSCO recommendations for securities settlement systems. The assessment also includes a focused review of Canada's compliance with Basel Core Principles for Effective Banking Supervision.

Main Conclusions of the Financial System Stability Assessment

The following are the four key findings as presented by the FSSA. The full report can be found at

Canada's financial system is mature, sophisticated, and well-managed.

Financial stability is underpinned by sound macroeconomic policies and strong prudential regulation and supervision. Deposit insurance and arrangements for crisis management and failure resolution are well-designed.

The stress tests show that the major banks can withstand sizeable shocks.

The main stress scenario assumes a recession one-third larger than in 1990-91. Although capital drops below the regulatory minimum, it remains adequate. Banks also appear to be able to withstand specific large single factor shocks for credit, market, and liquidity risk.

The banking system thus appears sound, but faces some challenges.

Although credit risk remains central, the global financial turmoil since mid-2007 has highlighted the information and liquidity risks in the structured finance products that Canadian banks too have embraced in recent years. Vulnerabilities may also arise from attempts, building on a secure domestic position, to enter highly competitive foreign markets or complex activities, as has sometimes been the case in the past.

There would be advantages in moving towards a single securities regulator.

Significant improvements to the regulatory system have been made as a result of the creation of the Canadian Securities Administrators, including those that will be brought about by the implementation of the passport system. Even so, moving further to a single regulator would allow policy development to be streamlined, reduce compliance costs, and improve enforcement.

The FSSA concludes that the regulatory framework for the securities market in Canada in most respects implements the IOSCO principles. Further, the Canadian depository securities settlement system is sound, efficient and reliable, and it complies with almost all recommendations for securities settlement systems. The FSSA also concludes that the Office of the Superintendent of Financial Institutions is compliant with the four revised Basel Core Principles for Effective Banking Supervision.