If the global economic downturn were significantly more severe than projected, then household defaults in Canada could rise sharply. This risk would be magnified if banks begin to tighten credit conditions to households more significantly than they have so far. In the FSR, we examined these risks using a simulated stress test.
Specifically, we examined an extreme scenario where nominal household income drops at an average annual rate of 2 per cent for six straight quarters as a result of global economic weakness.