Case Study

Context and Key Issues

Canadian banking leaders convened at the RBC CEO Conference in Toronto (January 2026) amid unprecedented global economic tensions. The discussion revealed three interconnected crises facing the financial sector:

National Security and Geopolitical Risk

National Bank CEO Laurent Ferreira characterized the current environment as an “economic war,” citing geopolitical instability at Canada’s doorstep as a primary concern. The extraordinary U.S. military action in Venezuela over the weekend prior to the conference underscored the unpredictability of the current geopolitical landscape. This uncertainty is manifesting in tangible economic effects including investment hesitation, fragile labor markets, and weakened consumer sentiment.

Rising Inequality

RBC CEO Dave McKay identified growing wealth disparity as a fundamental driver of political instability in North America. The top 20 percent of earners are diverging significantly from the majority, with the gap more severe in the United States than Canada. This inequality is reshaping political agendas and creating social tensions that could threaten economic stability.

Trade Uncertainty

With the Canada-United States-Mexico Agreement (CUSMA) review approaching mid-year, banks are advising clients not to expect quick resolutions. BMO CEO Darryl White emphasized that while tariffs have stabilized somewhat, relying on a new trade deal by summer would be a “bad assumption.” This prolonged uncertainty affects business investment and planning horizons.

Consumer Behavior Shifts

Interestingly, Canadian consumers continue meeting debt obligations and spending, but through an unusual mechanism. With real estate activity particularly condo pre-sales and construction at low levels, money that would typically service mortgage debt is being redirected to goods and services. This reallocation has helped stabilize employment but represents a structural shift in the economy.

Strategic Response: AI-Driven Transformation

All four bank CEOs emphasized aggressive artificial intelligence adoption as a core strategy for improving efficiency and return on equity. The initiatives span multiple dimensions:

CIBC is investing approximately 20 percent of its expense base in technology, with CEO Harry Culham suggesting this could eliminate the need for 3-5 percent annual headcount growth. TD Bank has already achieved 20 percent cost reductions in mortgage management operations, with CEO Raymond Chun projecting an additional 50 percent reduction through agentic AI implementation. The bank is simultaneously pushing customers toward mobile banking while selectively hiring wealth advisors and specialists. RBC, recognized as a top-three global bank for AI, sees continued opportunity for value creation through this technology.

Outlook

Short-Term Trajectory (6-12 months)

Economic Resilience with Fragility

The Canadian economy has demonstrated greater resilience than anticipated three months prior, according to BMO’s White. However, this stability rests on potentially unstable foundations including redirected real estate capital, geopolitical calm, and continued trade policy predictability. The CUSMA review in mid-2026 represents a critical inflection point that could either stabilize or destabilize the economic environment.

Consumer Spending Sustainability

The current consumer spending pattern appears unsustainable long-term. If real estate markets remain depressed while geopolitical or trade shocks emerge, Canadian households may face a dual squeeze of declining asset values and rising costs, potentially triggering payment difficulties and spending contractions.

AI Implementation Acceleration

Banks will likely accelerate AI deployment across operations, focusing on high-volume, routine processes. The 12-24 month horizon will see significant automation of mortgage processing, customer service, and back-office functions. This period will test whether AI can deliver promised efficiency gains without compromising service quality or creating customer friction.

Medium-Term Trajectory (2-5 years)

Workforce Transformation

Banking employment will undergo significant restructuring. While routine positions face elimination, specialized roles in wealth management, business banking, and AI system management will expand. This bifurcation mirrors the broader income inequality concerns raised by McKay, potentially exacerbating the very problem banks identify as destabilizing.

Competitive Dynamics

Banks successfully implementing AI will achieve substantial cost advantages and potentially superior customer experiences. Those lagging in technology adoption risk losing market share and facing margin compression. The “top three globally for AI” positioning RBC is pursuing suggests technology leadership is becoming a primary competitive differentiator.

Geopolitical Entrenchment

The characterization of current conditions as “economic war” suggests bank leaders expect prolonged rather than temporary tensions. This outlook implies persistent volatility in trade relationships, supply chains, and investment patterns requiring adaptive rather than static strategic planning.

Solutions

Immediate Actions (Banks and Financial Institutions)

Risk Management Enhancement

Banks should stress-test portfolios against multiple geopolitical scenarios including trade disruptions, commodity shocks, and political instability in North America. Scenario planning should extend beyond traditional financial metrics to incorporate national security considerations. Diversification across geographies, sectors, and customer segments can reduce concentration risk.

Customer Communication and Support

Proactive engagement with business clients regarding trade uncertainty is essential, as BMO is already doing. Banks should provide clients with tools, data, and advisory services to navigate CUSMA uncertainty and develop contingency plans. For retail customers facing the housing slowdown, banks could offer financial planning services to optimize the goods-versus-real-estate spending balance.

Responsible AI Implementation

AI deployment should prioritize customer benefit alongside cost reduction. Banks should maintain human oversight of critical decisions, ensure transparency in automated processes, and provide clear escalation paths when customers need human assistance. The goal should be enhancing rather than replacing human expertise for complex financial needs.

Workforce Transition Planning

Rather than abrupt headcount reductions, banks should implement retraining programs for employees in roles facing automation. Developing internal pathways from routine positions to specialized roles can preserve institutional knowledge while adapting to technological change. This approach also addresses inequality concerns by creating upward mobility.

Policy-Level Solutions (Government and Regulators)

Trade Agreement Stability

Canadian and U.S. policymakers should prioritize clarity and predictability in the CUSMA review process. Even if substantial changes are negotiated, providing businesses with clear timelines and transition periods would reduce the investment-paralyzing uncertainty banks are observing.

Inequality Mitigation

Progressive taxation, education investment, and social safety net enhancements can address the growing disparity McKay identified. Policies that broaden access to technology training, higher education, and skill development could help more workers benefit from rather than be displaced by AI transformation.

National Security Economic Integration

Government should work closely with financial institutions to identify critical economic vulnerabilities and develop resilience strategies. This includes supply chain diversification, critical infrastructure protection, and coordination mechanisms for responding to geopolitical shocks.

Housing Market Stabilization

Policies to stabilize housing markets particularly condo construction could prevent the structural shift in consumer spending from becoming permanent. This might include construction incentives, regulatory streamlining, or demand-side measures to restore confidence in real estate investment.

Individual and Business Actions

Businesses Operating in North America

Companies should diversify supply chains, develop multiple sourcing options, and build inventory buffers for critical inputs. Business models overly dependent on specific trade flows should be redesigned for greater flexibility. Financial planning should incorporate extended uncertainty rather than assuming near-term resolution.

Individual Financial Planning

Canadians should maintain emergency funds adequate for 6-12 months of expenses given economic uncertainty. Diversification across asset classes including geographic diversification can reduce concentration risk. Those with real estate exposure should consider whether their portfolio balance remains appropriate given market conditions.

Singapore Impact

Direct Financial Sector Parallels

Singapore’s banking sector faces remarkably similar pressures to Canadian banks, creating both cautionary lessons and strategic opportunities.

Geopolitical Positioning

Like Canada navigating U.S. proximity, Singapore must manage relationships with major powers including the United States, China, and regional neighbors. The “economic war” characterization applies equally to Singapore’s environment, where trade tensions, technology restrictions, and security competition create persistent uncertainty. Singapore’s open economy makes it particularly vulnerable to global trade disruptions.

AI Adoption Imperative

Singapore’s three major banks DBS, OCBC, and UOB are also investing heavily in AI and digital transformation. The Canadian experience suggests Singapore banks should focus on customer-centric implementation rather than pure cost reduction. Given Singapore’s tight labor market and high wage environment, AI-driven efficiency could provide significant competitive advantages while addressing workforce constraints.

Wealth Inequality Concerns

Singapore faces its own inequality challenges despite overall prosperity. The median-to-top income divergence that McKay warns about as politically destabilizing has parallels in Singapore’s society. Financial institutions should consider how their operations contribute to or mitigate these disparities, particularly as AI eliminates certain employment categories.

Broader Economic Implications for Singapore

Trade Agreement Stability

The CUSMA uncertainty reinforces why Singapore prioritizes multilateral trade frameworks and bilateral agreements. The Regional Comprehensive Economic Partnership (RCEP), Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), and extensive FTA network provide redundancy that Canada lacks. However, Singapore should continuously stress-test these arrangements against geopolitical scenario planning.

Real Estate Dynamics

Singapore’s property market faces different but related pressures. Like Canada, Singapore has seen policy interventions affecting housing demand. The Canadian example of redirected spending suggests Singapore policymakers should monitor whether property cooling measures are creating unintended consumption patterns. Given Singapore’s limited land and housing’s central role in national wealth, the Canadian scenario of sustained low housing investment would be particularly problematic.

Economic Resilience Strategy

The Canadian banks’ emphasis on national security and economic sovereignty resonates with Singapore’s vulnerability as a small, trade-dependent nation. Singapore should continue diversifying economic partnerships, developing critical capabilities domestically, and building reserves to weather external shocks. The Canadian emphasis on “nation building” and “reindustrialization” suggests even resource-rich countries see value in economic self-sufficiency Singapore should maintain this focus.

Strategic Recommendations for Singapore

Financial Sector

Singapore’s banks should study Canadian AI implementation closely, adopting successful approaches while avoiding pitfalls. The emphasis on maintaining human expertise for complex decisions while automating routine processes provides a balanced model. Singapore’s Monetary Authority should consider frameworks ensuring AI adoption enhances rather than compromises financial system stability.

Geopolitical Risk Management

Singapore should expand scenario planning to include the types of sudden geopolitical actions referenced in the article (the Venezuela situation). Financial institutions, government agencies, and businesses should conduct regular exercises exploring Singapore’s response to trade embargoes, technology restrictions, or regional conflicts. This preparation could provide critical response speed if crises emerge.

Inequality and Social Cohesion

Singapore should proactively address technology-driven inequality before it reaches the politically destabilizing levels McKay describes in North America. This includes robust retraining programs, ensuring AI benefits are broadly distributed, and maintaining social mobility pathways. Singapore’s compact society and strong government capacity position it well to manage this transition if action is taken early.

Trade Diversification

While Singapore already has extensive trade partnerships, the Canadian example suggests even greater geographic and partner diversification is valuable. Singapore should continue expanding economic relationships with emerging markets, not just traditional partners, to reduce dependence on any single relationship or region.

Housing Policy Calibration

Singapore should monitor whether current property policies are creating Canadian-style structural shifts in household balance sheets. While Singapore has different objectives than Canada in housing policy, unexpected behavioral changes like sustained spending increases from reduced housing investment could have inflation or financial stability implications requiring policy adjustment.

Conclusion

The Canadian banking sector’s experience reveals that even stable, well-regulated financial systems face unprecedented challenges from geopolitical fragmentation, technological disruption, and social inequality. For Singapore, these challenges are equally present but with unique local characteristics. The Canadian emphasis on speed, adaptability, and technology-driven efficiency provides a useful framework, but Singapore’s smaller size, greater trade dependence, and different political economy require tailored approaches. By learning from Canadian banks’ strategic responses while accounting for local context, Singapore can position its financial sector and broader economy to navigate the complex decade ahead.