G3 - Corporate Finance and Governance

• From Stress to Strategy: How Banks Balance the Scales

  Staff working paper 2026-26 Ruben Hipp, Javier Ojea Ferreiro

  This paper develops a stress-testing framework in which banks strategically adjust their balance sheets in response to regulatory constraints and market conditions. Applied to Canada’s largest banks, it quantifies the effects of macroprudential policies on lending and identifies systemic vulnerabilities through reverse stress testing.

  Content Type(s): Staff research, Staff working papers JEL Code(s): C, C6, C63, C7, C73, G, G2, G21, G3, G32, H, H1, H12 Research Theme(s): Financial system, Financial institutions and intermediation, Financial stability and systemic risk, Models and tools, Economic models

• Time-Inconsistent Manager Incentives and Capital Formation

  Staff working paper 2026-25 José-Víctor Ríos-Rull, Josef Schroth, Tamon Takamura, Yaz Terajima

  In a dynamic model with limited commitment, aggregate payout-based compensation induces managers to raise outside equity yet invest too little today. Per-share compensation eliminates the dilution motive and restores efficient investment, but it does so through slower capital accumulation that better protects incumbent shareholder value.

  Content Type(s): Staff research, Staff working papers JEL Code(s): G, G3, G32, G34, J, J3, J33 Research Theme(s): Financial markets and funds management, Market functioning, Models and tools, Economic models