Stability at What Cost? Canada’s Financial Regulators Risk Underestimating the Costs of Chasing Stability-Oriented Regulation

August 18, 2026 – Canadian financial regulation continues to overwhelmingly emphasize stability, resilience, and consumer protection – but regulators are paying too little attention to the costs of doing so, according to the C.D. Howe Institute’s third annual scorecard on Canadian financial regulation.

In “Walking the Tightrope: Canada’s Financial Regulatory Scorecard, Year Three,” Gherardo Caracciolo examines how regulators’ stated priorities have evolved through textual and topic analysis of regulatory documents.

The author finds that 92 percent of the regulations assessed continue to target stability, transparency, market abuse, and consumer protection, while 17 percent are aimed at enhancing efficiency and promoting growth and innovation.

“This imbalance is not an accident; it reflects the mandates of Canadian regulators, which primarily emphasize stability-related outcomes,” says Caracciolo, a Fellow-in-Residence with the C.D. Howe Institute. “As the scorecard shows, formal, transparent cost-benefit analysis is largely absent from regulatory practice, suggesting that these costs are not systematically incorporated into policy design.”

This latest edition of the scorecard also examines how regulation can affect financial stability itself through a simple macro-financial framework. It finds that stability-oriented regulation operates through two opposing channels: tighter rules can reduce the amplification of shocks, while compliance costs can absorb resources and erode financial institutions’ capacity to withstand those shocks.

This means that stability-oriented regulations can simultaneously reduce shock amplification and financial institutions’ capacity to absorb shocks – potentially working against the very objective they are meant to serve. Whether the overall effect is stabilizing or destabilizing depends on the relative strength of these two forces, writes Caracciolo.

The report also finds that stronger macroprudential tightening is associated with weaker subsequent economic growth, while providing no statistically measurable reduction in the probability of recession.

“Stability and efficiency can reinforce one another,” says Caracciolo. “When compliance costs are significant, neglecting efficiency can undermine stability itself and weigh on Canada’s long-term productivity.”

Read the Full Report

For more information, contact: Gherardo Caracciolo, Fellow-in-Residence, C.D. Howe Institute; and Lauren Malyk, Manager, Communications, C.D. Howe Institute, 416-873-6168, lmalyk@cdhowe.org. 

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.

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