The Bank of Canada and the International Monetary Fund submitted the country’s large banks to a stress test that imagines an economic catastrophe worse than both the Great Recession and the COVID-19 crisis. The banks took a beating, but survived without having to deplete their stores of reserve capital below regulatory minimums. (The Logic)

Talking point: The Bank of Canada’s annual Financial Stability Report coincided with the IMF’s forthcoming periodic review of the country’s financial system, so the two institutions teamed up to see whether the banks could withstand a “severe shock, such as a trade war” that caused both high unemployment and high inflation. Losses on credit cards spike in this scenario, while a significant amount of business loans including commercial real estate lending goes bad. But banks endure, thanks to elevated capital buffers, diversified lending portfolio and a “strong” ability to generate profits. Canada is facing a lot of problems, but a homegrown financial crisis isn’t one.