The Financial Stability Board praises Canada’s response to the financial crisis, but calls on Canadian policymakers to remain alert to high household debt levels, and risks emanating from the global economy.

The FSB Monday published a peer review report on Canada, praising the country’s resilience through the financial crisis.

“The response of the Canadian authorities to the global financial crisis was swift and effective. The strength of the economy and of the financial system at the onset of the crisis meant that no Canadian financial institution failed or required government support in the form of a capital injection or debt guarantees,” it notes.

Given the uncertain global outlook, the FSB says that Canadian authorities will need to remain vigilant. “Two areas for particular attention are the exposure of the economy and financial system to continued adverse global economic developments, and the increasing indebtedness of Canadian households,” it says.

To address these risks, it calls on Canadian authorities to continue to strengthen macroprudential surveillance and consider expanding the range of tools at their disposal.

The review also examines the steps taken by the Canadian authorities to address recommendations on regulatory and supervisory issues under the Financial Sector Assessment Program, including: banking supervision, stress testing and the early intervention regime; the functioning of asset backed commercial paper and structured finance markets; securities regulation; and securities settlement systems. And, it concludes that the authorities have made good progress in addressing the recommendations across all of these areas.

The most important challenge in the securities sector, it says, concerns the co-ordination among provincial regulators. The report says that establishing a single national securities regulator would bring clear economic benefits, however it notes that this effort has been derailed by the recent Supreme Court of Canada decision.

Finally, it also calls on the authorities to continue their efforts to bring more safety and efficiency in securities settlement systems.

The report also notes that Canada’s resilience, which was achieved in spite of the relatively complex regulatory structure, provides valuable lessons for other FSB members, including the importance of having pro-active and targeted macroeconomic policies supported by adequate fiscal space and a flexible exchange rate to help absorb external shocks; prudent bank risk management, particularly a stable and well-diversified funding profile as well as conservative loan underwriting standards; and a comprehensive regulatory and supervisory framework that sometimes adopts regulatory policies that go beyond international minimum standards.

In response to the report, federal finance minister, Jim Flaherty, said, “This report confirms that we can be proud of what we have achieved with our financial system over the last few years.”