Maarten van Oordt is Research Advisor in the Currency Department of the Bank of Canada. His policy work focuses on the risk management and financial stability issues that have been pushed to the forefront by the recent financial crisis. Before joining the Bank, Maarten worked as an economist in the Economics and Research Division of De Nederlandsche Bank (Dutch Central Bank). He received his PhD from Erasmus University Rotterdam, on the topic “On Extreme Events in Banking and Finance”. Several of the chapters in his thesis have been published in academic journals such as the Journal of Financial Intermediation and the Journal of Financial and Quantitative Analysis.
The present paper shows that, everything else equal, some transactions to transfer portfolio credit risk to third-party investors increase the insolvency risk of banks. This is particularly likely if a bank sells the senior tranche and retains a sufficiently large first-loss position.
The Bank’s internal credit risk assessment abilities are regularly enhanced. In this note, we present a recent innovation that extends the set of market-based indicators used in the credit risk assessment of financial counterparties.
This report reviews the use of quantitative tools to gauge market participants’ assessment of banking system resilience. These measures complement traditional balance-sheet metrics and suggest that markets consider large Canadian banks to be better placed to weather adverse shocks than banks in other advanced economies. Compared with regulatory capital ratios, however, the measures suggest less improvement in banking system resilience since the pre-crisis period.
This paper develops an economic framework to analyze the exchange rate of virtual currency. Three components are important: first, the current use of virtual currency to make payments; second, the decision of forward-looking investors to buy virtual currency (thereby effectively regulating its supply); and third, the elements that jointly drive future consumer adoption and merchant acceptance of virtual currency.
This note introduces several market-based indicators and examines how they can further inform the Bank of Canada’s vulnerability assessment of Canadian financial institutions. Market-based indicators of leverage suggest that the solvency risk for major Canadian banks has increased since the beginning of the oil-price correction in the second half of 2014.