G - Financial Economics

• A Financial Stability Analysis of Zombie Firms in Canada

  Staff Analytical Note 2020-3 Timothy Grieder, Juan Ortega

  We measure the prevalence of zombie firms in Canada and assess how they could potentially affect the financial system.

  Content Type(s): Staff research, Staff analytical notes Research Topic(s): Credit and credit aggregates, Financial stability, Sectoral balance sheet JEL Code(s): G, G3, G32

• The Effect of Mortgage Rate Resets on Debt: Evidence from TransUnion (Part I)

  Staff Analytical Note 2020-2 Katya Kartashova

  This note studies how decreases in mortgage rates affect the behaviour of borrowers in terms of spending on durable goods and repaying debt.

  Content Type(s): Staff research, Staff analytical notes Research Topic(s): Credit and credit aggregates, Housing, Interest rates, Monetary policy, Monetary policy transmission JEL Code(s): D, D1, D12, D14, E, E4, E43, E5, E52, G, G2, G21, R, R3, R31

• Managing GDP Tail Risk

  Staff Working Paper 2020-3 Thibaut Duprey, Alexander Ueberfeldt

  Models for macroeconomic forecasts do not usually take into account the risk of a crisis—that is, a sudden large decline in gross domestic product (GDP). However, policy-makers worry about such GDP tail risk because of its large social and economic costs.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Central bank research, Economic models, Financial stability, Financial system regulation and policies, Interest rates, Monetary policy, Monetary policy framework JEL Code(s): D, D8, E, E4, E44, E5, E52, E58, G, G0, G01

• Contagion in Dealer Networks

  Staff Working Paper 2020-1 Jean-Sébastien Fontaine, Adrian Walton

  Dealers connect investors who want to buy or sell securities in financial markets. Over time, dealers and investors form trading networks to save time and resources. An emerging field of research investigates how networks form.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Financial markets, Market structure and pricing, Payment clearing and settlement systems JEL Code(s): E, E4, G, G1, G2, G21, L, L1, L14

• Creations and Redemptions in Fixed-Income Exchange-Traded Funds: A Shift from Bonds to Cash

  Staff Analytical Note 2019-34 Rohan Arora, Sébastien Betermier, Guillaume Ouellet Leblanc, Adriano Palumbo, Ryan Shotlander

  The creation and redemption activity of fixed-income exchange-traded funds listed in the United States has shifted. Funds of established issuers have traditionally exchanged their shares for baskets of bonds. In contrast, young funds managed by new issuers tend to create and redeem their shares almost exclusively in cash. Cash transactions imply that new funds are taking on exposure to liquidity risk. This has implications for financial stability.

  Content Type(s): Staff research, Staff analytical notes Research Topic(s): Financial markets, Financial stability JEL Code(s): G, G1, G2, G20, G23

• The Cyber Incident Landscape

  Staff Analytical Note 2019-32 Nikil Chande, Dennis Yanchus

  The Canadian financial system is vulnerable to cyber threats. But for many firms, cyber risk is difficult to quantify. We examine public information on past cyber incidents to better understand the current risk landscape and find that a holistic view is needed to fully grasp the nature of this risk.

  Content Type(s): Staff research, Staff analytical notes Research Topic(s): Financial markets, Financial stability JEL Code(s): G, G2, G28, M, M1, M15, O, O3, O33, O38

• Loan Insurance, Market Liquidity, and Lending Standards

  Staff Working Paper 2019-47 Toni Ahnert, Martin Kuncl

  We examine loan insurance—credit risk transfer upon origination—in a model in which lenders can screen, learn loan quality over time, and can sell loans. Some lenders with low screening ability insure, benefiting from higher market liquidity of insured loans while forgoing the option to exploit future information about loan quality.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Financial markets, Financial system regulation and policies JEL Code(s): G, G0, G01, G2, G21, G28

• Assessment of Liquidity Creation in the Canadian Banking System

  Staff Analytical Note 2019-30 Annika Gnann, Sahika Kaya

  Liquidity creation is a fundamental function of banks. It provides the public with easy access to funds. These funds are important because they allow households and businesses to consume and invest. In this note, we measure liquidity creation by Canadian financial institutions from the first quarter of 2012 to the second quarter of 2019, using a methodology suggested by Berger and Bouwman (2009) and known as the BB measure.

  Content Type(s): Staff research, Staff analytical notes Research Topic(s): Financial institutions, Financial stability, Monetary and financial indicators JEL Code(s): G, G2, G21, G28, G3, G32

• Extreme Downside Risk in Asset Returns

  Staff Working Paper 2019-46 Lerby Ergun

  Financial markets can experience sudden and extreme downward movements. Investors are highly concerned about the performance of their assets in such scenarios. Some assets perform badly in a downturn in the market; others have milder reactions.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Asset pricing, Econometric and statistical methods JEL Code(s): C, C1, C14, G, G1, G11, G12

• Interconnected Banks and Systemically Important Exposures

  Staff Working Paper 2019-44 Alan Roncoroni, Stefano Battiston, Marco D’Errico, Grzegorz Halaj, Christoffer Kok

  How do banks' interconnections in the euro area contribute to the vulnerability of the banking system? We study both the direct interconnections (banks lend to each other) and the indirect interconnections (banks are exposed to similar sectors of the economy). These complex linkages make the banking system more vulnerable to contagion risks.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Financial stability JEL Code(s): C, C6, C63, G, G1, G15, G2, G21