Implementing market-based indicators to monitor vulnerabilities of financial institutions

Cameron MacDonald, Maarten van Oordt, Robin Scott

Research output: Book / ReportReportProfessional


This note introduces several market-based indicators and examines how they can further inform the Bank of Canada’s vulnerability assessment of Canadian financial institutions. Market-based indicators of leverage suggest that the solvency risk for major Canadian banks has increased since the beginning of the oil-price correction in the second half of 2014. This is in contrast to accounting-based leverage measures, which indicate a stable or improving trend. Similarly, measures of insolvency risk contingent on severe financial stress (i.e., market-based stress tests) indicate that the major banks are currently more vulnerable to a sudden adverse shock than they were in the summer of 2014. Finally, a measure of financial system interconnectedness and common exposures suggests a strong link between the major banks and the rest of the financial system, as expected. In other financial subsectors, the degree of interconnectedness has exhibited an upward trend over the last two decades.
Original languageEnglish
Number of pages11
Publication statusPublished - 2016

Publication series

NameBank of Canada Staff Analytical Note
ISSN (Electronic)2369-9639


  • Financial stability
  • Risk management
  • Systemic risk
  • Financial institutions
  • Banks
  • Insurers


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