Canadians are attracted to negative reports from abroad about their country like bees to honey. So it’s interesting that financial markets, for once, essentially yawned about a report from the Bank for International Settlements (BIS) that warned of an impending banking crisis here. Canada stood out as the sole country of the 26 reported on that had all four “early warning indicators” flashing either red or amber.
There’s plenty of reason to be skeptical about the report’s methodology. Financial crises are rare events, so trying to glean warning signs of them starts with major data limitations. Countries have very different regulatory environments, macro-prudential buffers, and data definitions. Even the report itself has multiple warnings to treat its results with “considerable caution.”