June 21 (Reuters) - The overall risk to Canadian financial stability has increased over the past six months as mounting concerns over sovereign debt erupted in financial markets, the Bank of Canada said on Monday.
The bank said in its Financial System Review that while the Canadian financial system continues to function well, it is vulnerable to renewed stress if global market tensions increase.
In the past six months, risks to the stability of the domestic financial system have increased in the categories of funding and liquidity, global imbalances and currency volatility, and the global economic outlook.
Risks from capital adequacy have decreased, while risks from household balance sheets are unchanged, the central bank said.
Attaining fiscal sustainability requires credible plans to achieve viable fiscal balances, consistent with the G20 commitment to enact macroeconomic policies promoting strong, sustainable, and balanced growth, the bank said in the report.
Until these plans are implemented, fiscal challenges will continue to pose a risk for financial stability.
The bank said governments with fiscal imbalances need to quickly put in place plans to achieve sustainable fiscal positions. (Reporting by Ka Yan Ng; editing by Mario Di Simine)