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1010
result(s)
What Matters in Determining Capital Surcharges for Systemically Important Financial Institutions?
Staff Discussion Paper 2011-9
Céline Gauthier,
Toni Gravelle,
Xuezhi Liu,
Moez Souissi
One way of internalizing the externalities that each individual bank imposes on the rest of the financial system is to impose capital surcharges on them in line with their systemic importance.
November 17, 2011
Liquidity Provision and Collateral Haircuts in Payments Systems
Central banks play a pivotal role in well-functioning payments systems by providing liquidity via collateralized lending. This article discusses the role of collateral and haircut policy in central bank lending, as well as the distinguishing features of the central bank’s policy relative to private sector practices. It presents a model that explicitly incorporates the unique role of central banks in the payments system and argues that central banks must consider how their haircut policies affect the relative price and liquidity of assets, the market’s asset allocation, and the likelihood of participants to default. Furthermore, under extraordinary circumstances, there is a rationale for the central bank to temporarily reduce haircuts or broaden the list of eligible collateral to mitigate the shortage of liquidity in the market.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Central bank research,
Financial stability,
Payment clearing and settlement systems
Determinants of Financial Stress and Recovery during the Great Recession
Staff Working Paper 2011-24
Joshua Aizenman,
Gurnain Pasricha
In this paper, we explore the link between stress in the domestic financial sector and the capital flight faced by countries in the 2008-9 global crisis. Both the timing of emergence of internal financial stress in developing economies, and the size of the peak-trough declines in the stock price indices was comparable to that in high income countries, indicating that there was no decoupling, even before Lehman Brothers’ demise.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Balance of payments and components,
Financial markets,
International topics
JEL Code(s):
F,
F3,
F32,
G,
G1,
G15
How Do You Pay? The Role of Incentives at the Point-of-Sale
Staff Working Paper 2011-23
Carlos Arango,
Kim Huynh,
Leonard Sabetti
This paper uses discrete-choice models to quantify the role of consumer socioeconomic characteristics, payment instrument attributes, and transaction features on the probability of using cash, debit card, or credit card at the point-of-sale.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Bank notes,
Econometric and statistical methods,
Financial services
JEL Code(s):
C,
C3,
C35,
C8,
C83,
E,
E4,
E41
Measuring Systemic Importance of Financial Institutions: An Extreme Value Theory Approach
Staff Working Paper 2011-19
Toni Gravelle,
Fuchun Li
In this paper, we define a financial institution’s contribution to financial systemic risk as the increase in financial systemic risk conditional on the crash of the financial institution. The higher the contribution is, the more systemically important is the institution for the system.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Econometric and statistical methods,
Financial institutions,
Financial stability,
Financial system regulation and policies
JEL Code(s):
C,
C1,
C14,
C5,
C58,
G,
G2,
G21,
G3,
G32
August 18, 2011
Introducing Multiple Interest rates in ToTEM
This article describes changes to the structure of ToTEM—the Bank of Canada’s main model for projection and policy analysis—that allow an independent role for long-term interest rates, as well as for the risk spreads that lead to differences in the interest rates faced by households, firms and the government. These changes broaden the range of policy questions that the model can address and improve its ability to explain data. The authors use the model to simulate the effects of shocks to the risk spreads on interest rates similar to those that occurred during the recent financial crisis. They also use the model to assess the macroeconomic impact of higher requirements for bank capital and liquidity.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Economic models,
Financial system regulation and policies,
Interest rates
August 18, 2011
The BoC-GEM-Fin: Banking in the Global Economy
This article describes the Bank of Canada’s version of the Global Economy Model structured to incorporate an active banking system that features an interbank market and cross-border lending. After describing the new model, the authors use it to examine the responses of selected U.S. and Canadian macroeconomic variables to a “credit crunch” in the United States and also to study the impact of changes in the regulatory limits to bank leverage in Canada. They also discuss the relative merits of a monetary policy framework based on inflation targeting and one based on price-level targeting in the presence of shocks to the U.S. and Canadian banking sectors.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Economic models,
Financial institutions,
Financial system regulation and policies,
Monetary policy framework
August 18, 2011
Bank Balance Sheets, Deleveraging and the Transmission Mechanism
The author investigates the influence of bank capital on economic activity, using a macroeconomic model that incorporates an explicit role for financial intermediation. The analysis focuses on the role of a “bank-capital channel” in propagating and amplifying monetary policy actions and other shocks. The question of whether weaker bank balance sheets make the economy more vulnerable to adverse shocks is examined, together with the impact of initiatives, such as countercyclical capital buffers, on the transmission of monetary policy and other shocks to the real economy.
August 18, 2011
Mortgage Debt and Procyclicality in the Housing Market
This article focuses on the role that loans backed by housing collateral play in amplifying housing booms and, more generally, procyclicality in the housing market. The author uses a model developed to include borrower and lender households, as well as a housing market, to examine the impact that altering the loan-to-value ratio (either permanently or countercyclically) might have on the volatility of house prices and mortgage debt.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Economic models,
Financial system regulation and policies,
Market structure and pricing