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Canadian regulator creating stress test framework

image007The Bank of Canada is reported to be developing a framework for stress tests that will incorporate different sectors of the financial system to enhance its contribution to macroprudential oversight in Canada. Deputy governor of the bank Lawrence Schembri said the system-wide framework would cover banking, insurance and investment funds, as well as financial markets and financial infrastructure. Schembri said in prepared remarks that central banks must rethink their role in financial stability in light of the severity of the global financial crisis. Among measures Schembri suggested central banks can take to aid financial stability is encouraging prudence among borrowers and lenders, and increasing transparency to create market awareness of potential vulnerabilities.

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