OTTAWA—Bank of Canada analysis shows that while global banking stresses have been contained and the Canadian banks remain robust, the effects of much higher interest rates are exposing vulnerabilities in the banking sector. These can raise the cost of banks’ funding and thus make it harder for households and businesses to get loans, which could worsen a potential recession, according to the Bank of Canada’s annual financial system review (FSR), released May 18.
The BoC’s FSR identifies areas of concern in the economy that it is monitoring to see what could go wrong and the implications for stability of the financial system….