Don Drummond is the Stauffer-Dunning fellow at Queen’s University and the former chief economist at TD Bank. He is also a former associate deputy minister at Finance Canada.

“Nothing to see here” may be a tempting conclusion for Canadians with the failure of Silicon Valley Bank and Signature Bank, which had relatively small domestic presences.

But witness the sharp drop in the price of Canadian bank stocks in the wake of Silicon Valley Bank’s collapse.

And witness the continued drop on Tuesday on news of turbulence at the bank Credit Suisse, a matter that while separate, underscores the same lesson: Just because Canada’s more conservative banking practices have somewhat shielded this country’s economy, it does not mean we should be complacent.

Silicon Valley Bank collapse: What’s next for banks and investors?

Think back to the 2008 financial crisis. I was TD Bank’s chief economist before, during and after that period. Relative to their American counterparts, Canadian banks were better capitalized and had more diversified portfolios, checked identification and sources of income for loans and for the most part stayed away from sub-prime lending. Yet Canadian banks still struggled to obtain funding and even though Canada did not suffer the housing collapse faced by Americans, we did have a severe recession.

We had eight consecutive monthly declines in output. Those declines delivered a total output loss of almost 4 per cent in the ensuing recession, just slightly less than the loss in the United States, the epicentre of the financial shock. The well worn adage that “when the U.S. sneezes, Canada catches a cold” was applicable again.

Now, the question is to what degree the lesson from the financial crisis applies.

The threats to Canadian banking and the economy are far from over. There could be further financial contagion in the United States. The loss in value of bond holdings due to rising interest rates, a factor in the Silicon Valley Bank collapse, afflicts the entire banking sector.

Tuesday’s Credit Suisse saga could not have come at a worse time. After a string of scandals that have undermined investor and client confidence, the Swiss lender’s largest shareholder said it could offer no more assistance. Credit Suisse’s stock slumped as much as 30 per cent amid fears of a new banking crisis.

Central banks in many countries, meanwhile, are far from success in their drive to reduce inflation. While the Bank of Canada has signaled a pause in the interest rate hikes, the U.S. Federal Reserve Board has been flagging their intent to drive rates up further. The bank failures may put that on pause, but not likely for long. Recession in one or both countries is a distinct possibility.

On top of that, there are the longer-term implications of the Canadian government’s target of net zero carbon emissions by 2050. The objective is to be lauded, but the risks loom large. Success will require a phenomenal transformation of the carbon-intensive Canadian economy – including fundamental changes in Canadian banking that will test their tried-and-true conservative practices.

Long backing oil and gas firms, Canadian banks must both de-carbonize their portfolios and find ways of better supporting new, clean growth firms and technologies. Can they support, hopefully even lead, the necessary economic transformation without taking on unacceptable risk? The Silicon Valley Bank experience must be studied as a lesson on how not to do this.

Lessons learned from the 2008 financial crisis and challenges on the horizon dictate caution and concern regarding the latest U.S. bank failures. The prudent practices and regulation of Canadian banking must continue, even if the demands of moving toward net zero emissions may take them out of their comfort zone.

As well, we should hope regulators – particularly the Americans – learn some lessons from Canada because problems in the financial sector south of the border certainly do cause havoc here. If not for themselves, then for the sake of Canadians, regulators around the world must tighten their financial sector oversight.