Staff analytical notes

Unintended consequences of liquidity regulation

Staff Analytical Note 2025-28 Omar Abdelrahman, Josef Schroth
When a bank holds a lot of safe assets, it is well situated to deal with funding stress. But when all banks hold a lot of safe assets, a pecuniary externality implies that their (wholesale) funding costs increase. This reduces banks’ ability to hold capital buffers and thus, paradoxically, increases the frequency of funding stress.
Content Type(s): Staff research, Staff analytical notes Research Topic(s): Credit and credit aggregates, Financial stability, Financial system regulation and policies JEL Code(s): E, E4, E44, E6, G, G2, G21, G28

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Technical reports

Simulating the Resilience of the Canadian Banking Sector Under Stress: An Update of the Bank of Canada’s Top-Down Solvency Assessment Tool

Technical Report No. 128 Omar Abdelrahman, David Xiao Chen, Cameron MacDonald, Adi Mordel, Guillaume Ouellet Leblanc
We present a technical description of the Top-Down Solvency Assessment (TDSA) tool. As a solvency stress-testing tool, TDSA is used to assess the banking sector’s capital resilience to hypothetical future risk scenarios.
Content Type(s): Staff research, Technical reports Research Topic(s): Economic models, Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): C, C2, C22, C5, C52, C53, G, G1, G17, G2, G21, G28

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