As Canada-U.S. trade tensions persist, Royal Bank of Canada (RBC) CEO Dave McKay says the two economies remain closely linked and the bank will keep investing in cross-border business. At the same time, RBC has raised loan-loss provisions and diversified its revenue to prepare for a possible deterioration in trade ties. The C$2.5 trillion bank sees the U.S. as both a major market and an exposure that requires careful management.
RBC continues to invest in cross-border business
McKay said a decline in Canada-U.S. trade is not inevitable, noting that commercial ties have benefited both countries over many years. RBC recently launched a global transaction banking division, bringing together its digital cash-management platforms in Canada and the U.S. to help companies operate more smoothly across North America. The bank has also helped finance oil and gas pipeline projects linking the two countries.
In the quarter ended July 31, RBC’s U.S. operations generated US$826 million in net income, about 19% of the bank’s total net income for the period. The contribution makes cross-border business material to group performance—and leaves RBC exposed to shifts in trade policy.
“We’re investing for growth, not decoupling,” McKay said. He supports Canada expanding trade with Europe and Asia, but not at the expense of trade with the U.S. The United States-Mexico-Canada Agreement remains in force and is scheduled to run through 2036. McKay said political rhetoric does not always reflect what businesses need, adding that many companies still want to build their North American operations together.
Loan-loss provisions add a buffer
RBC’s confidence in the trade relationship has not ruled out precautionary steps. In May 2025, about a month after the U.S. announced tariff measures, the bank increased its loan-loss provisions by 54%. McKay said the move accounted for the possibility that a trade war could trigger an economic downturn. The bank followed its scenario analysis despite the higher provisions weighing on results.
Raymond James banking analyst Stephen Boland said Canadian banks should be cautious about corporate lending exposure in the U.S., where tariffs could be extended suddenly to industries not previously expected to be affected. Policy uncertainty can pressure borrowers’ businesses and make their ability to repay loans harder to assess.
Revenue diversification is another buffer for RBC. The bank is not reliant solely on growth in commercial lending: in its latest quarter in 2026, net income from wealth management and capital markets was higher than from commercial banking. Boland said RBC is no longer simply a bank dependent on loan expansion, and that its mix of businesses supports it in a trade-related downturn.
City National earnings recover as operations remain in focus
RBC’s other major U.S. business is Los Angeles-based City National Bank, which it acquired in 2015. City National struggled during the 2023 banking turmoil, including incurring losses of hundreds of millions of dollars. U.S. regulators also fined the bank US$65 million over issues including risk management.
Results have improved in recent quarters. City National reported net income of US$184 million in RBC’s latest quarter, up from US$114 million in the same period of 2025 and US$52 million in 2024. McKay said trade issues had had limited effects on City National and RBC’s U.S. operations overall. Boland said the bank had spent about three years improving operations and was now focused on growing loans.
McKay credited management changes with helping turn the business around. During the pandemic, City National’s assets quickly grew beyond US$100 billion, while its existing management team had yet to adapt to the corresponding regulatory requirements. RBC brought in two executives who had previously worked at Fifth Third Bancorp: Greg Carmichael became City National’s executive chairman, and Howard Hammond its CEO. McKay said the bank needed leaders with regional-bank experience, rather than a team familiar only with community banking.
Energy costs add another variable for clients
Beyond trade, Boland is watching how fuel costs could affect City National’s clients. Energy costs can change how businesses operate, he said, although he has not seen a clear impact so far and expects any changes to emerge gradually in 2027. For RBC, the outlook means assessing U.S. exposure requires attention not only to tariffs but also to customers’ costs and operating conditions.
McKay said Canada and the U.S. have shared interests in energy, data, technology and national security, providing a practical basis for continued cooperation. He acknowledged that some sectors, including automotive manufacturing, may continue to face higher tariffs, but said the countries’ economic ties are unlikely to be easily severed. RBC’s approach is to keep investing in cross-border growth while using provisions, diversified revenue and changes at its U.S. subsidiary to limit the potential impact of worsening trade conditions.