Staff discussion papers
Canadian Bank Balance-Sheet Management: Breakdown by Types of Canadian Financial InstitutionsThe authors document leverage, capital and liquidity ratios of banks in Canada. These ratios are important indicators of different types of risk with respect to a bank’s balance‐sheet management. Particular attention is given to the observations by different types of banks, including small banks that historically received less attention.
Staff working papers
Flight from Safety: How a Change to the Deposit Insurance Limit Affects Households’ Portfolio AllocationDeposit insurance protects depositors from failing banks, thus making insured deposits risk-free. When a deposit insurance limit is increased, some deposits that previously were uninsured become insured, thereby increasing the share of risk-free assets in households’ portfolios. This increase cannot simply be undone by households, because to invest in uninsured deposits, a household must first invest in insured deposits up to the limit. This basic insight is the starting point of the analysis in this paper.
International Banking and Cross-Border Effects of Regulation: Lessons from CanadaWe study how changes in prudential requirements affect cross-border lending of Canadian banks by utilizing an index that aggregates adjustments in key regulatory instruments across jurisdictions.
Effects of Funding Portfolios on the Credit Supply of Canadian BanksThis paper studies how banks simultaneously manage the two sides of their balance sheet and its implications for bank risk taking and real economic activity. First, we analyze how changes in funding affect the supply of bank loans.
Banks’ Financial Distress, Lending Supply and Consumption ExpenditureThe paper employs a unique identification strategy that links survey data on household consumption expenditure to bank-level data in order to estimate the effects of bank financial distress on consumer credit and consumption expenditures.
The Ex-Ante Versus Ex-Post Effect of Public GuaranteesIn October 2006, Dominion Bond Rating Service (DBRS) introduced new ratings for banks that account for the potential of government support. The rating changes are not a reflection of any changes in the respective banks’ credit fundamentals.
Consumer Bankruptcy and InformationWe analyze the relationship between the intensity of banks’ use of soft-information and household bankruptcy patterns. Using a unique data set on the universe of Canadian household bankruptcies, we document that bankruptcy rates are higher in markets where the collection of soft, or qualitative locally gathered information, is the weakest.
Leverage, Balance Sheet Size and Wholesale FundingSome evidence points to the procyclicality of leverage among financial institutions leading to aggregate volatility. This procyclicality occurs when financial institutions finance their assets with non-equity funding (i.e., debt financed asset expansions). Wholesale funding is an important source of market-based funding that allows some institutions to quickly adjust their leverage.
Shock Transmission Through International Banks: CanadaIn this paper, we investigate how liquidity conditions in Canada may affect domestic and/or foreign lending of globally active banks and whether this transmission is influenced by individual bank characteristics.
Bank of Canada Review articles
August 16, 2012
An Analysis of Indicators of Balance-Sheet Risks at Canadian Financial InstitutionsThis article examines four indicators of balance-sheet risks—leverage, capital, asset liquidity and funding—among different types of financial institutions in Canada over the past three decades. It also discusses relevant developments in the banking sector that could have contributed to the observed dynamics. The authors find that the various risk indicators decreased during the period for most of the non-Big Six financial institutions, but remained relatively unchanged for the Big Six banks. In addition, the balance-sheet risk indicators became more heterogeneous across financial institutions. The observed overall decline and increased heterogeneity follow certain regulatory changes, such as the introduction of the liquidity guidelines on funding in 1995 and the implementation of bank-specific leverage requirements in 2000. Given that these regulations required more balance-sheet risk management, they have likely contributed to the increased resilience of the banking sector.
February 23, 2012