Bank of Canada Governor Tiff Macklem said the financial system must adapt to high interest rates, just like the rest of the economy.

Macklem addressed the recent banking stresses that erupted in the United States last month while speaking to journalists on Friday on the sidelines of the International Monetary Fund meetings in Washington, D.C.

The collapse of Silicon Valley Bank, followed by other financial institutions, had raised concerns about the implications of rapid interest rate hikes on financial stability.

But Macklem said central banks will not back down, noting that they are "determined to bring inflation back to their inflation targets."

The governor also added that adapting to high interest rates may be difficult for the financial system, just as it may be difficult for anyone else.

Central banks have raised interest rates significantly over the past year as they work in complete harmony to crush the high inflation that surged after the COVID-19 pandemic. However, the rapid rise in interest rates has proven to be a challenge for some financial institutions.

Likewise, in the quarterly monetary policy report issued by the Bank of Canada on Wednesday, the central bank focused on the recent banking stresses, noting that they will contribute to a slowdown in global growth with tighter credit conditions.

The report said: "Recently, funding costs have increased for American banks, and there are concerns that conditions may deteriorate further. Therefore, some pullback in lending is expected, especially in American regional banks, which play an important role in lending to small businesses."

Nevertheless, Macklem said he does not agree with the idea that price stability and financial stability are at odds with each other, adding that achieving both is critical, adding: "They reinforce each other. Financial stability is a prerequisite for price stability, and price stability, and confidence in the value of money, is the foundation for a stable and well-functioning financial system."

The governor also pointed out that the central bank has other tools available to provide emergency liquidity to the financial system in case of a crisis.