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1017
result(s)
Stablecoins and Their Risks to Financial Stability
Staff Discussion Paper 2022-20
Cameron MacDonald,
Laura Zhao
What risks could stablecoins pose to the financial system? We argue that the stabilization mechanisms of stablecoins give rise to the risk of confidence runs, which can propagate to broader cryptoasset markets and the traditional financial sector. We also argue that stablecoins can contribute to financial stability risks by facilitating the buildup of leverage and liquidity mismatch in decentralized finance. Such risks cannot be addressed by ensuring the price stability of stablecoins alone. Finally, we explore the potential implications of stablecoins for the current system of bank-intermediated credit and for monetary policy.
Content Type(s):
Staff research,
Staff discussion papers
Topic(s):
Digital currencies and fintech,
Financial institutions,
Financial markets,
Financial stability,
Financial system regulation and policies
JEL Code(s):
E,
E4,
E42,
E44,
E5,
E58,
G,
G2,
G23
Variable-rate mortgages with fixed payments: Examining trigger rates
Staff Analytical Note 2022-19
Stephen Murchison,
Maria teNyenhuis
We estimate the share of variable-rate mortgages with fixed payments that reached the so-called trigger rate—the interest rate at which mortgage payments no longer cover the principal. Amid rising interest rates, this share was close to 50% at the end of October 2022 and could potentially reach 65% in 2023.
Content Type(s):
Staff research,
Staff analytical notes
Topic(s):
Credit and credit aggregates,
Financial institutions,
Interest rates,
Recent economic and financial developments
JEL Code(s):
D,
D1,
E,
E4,
E5,
G,
G2,
G21
Stagflation and Topsy-Turvy Capital Flows
Staff Working Paper 2022-46
Julien Bengui,
Louphou Coulibaly
Unregulated capital flows are likely excessive during a stagflation episode, owing to a macroeconomic externality operating through the economy’s supply side. Inflows raise domestic wages and cause unwelcome upward pressure on firm costs, yet market forces likely generate such inflows. Optimal capital flow management instead requires net outflows.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Inflation and prices,
International financial markets,
International topics,
Monetary policy
JEL Code(s):
D,
D6,
D62,
E,
E5,
E52,
F,
F3,
F32,
F38,
F4,
F41
Considerations for the allocation of non-default losses by financial market infrastructures
Staff Analytical Note 2022-16
Daniele Costanzo,
Radoslav Raykov
Non-default losses of financial market infrastructures (FMIs) have gained attention due to their potential impacts on FMIs and FMI participants, and the lack of a common approach to address them. A key question is, who should absorb these losses?
Content Type(s):
Staff research,
Staff analytical notes
Topic(s):
Financial markets,
Financial system regulation and policies
JEL Code(s):
G,
G2,
G23,
G28,
G3,
G32,
G33
Grasping De(centralized) Fi(nance) Through the Lens of Economic Theory
Staff Working Paper 2022-43
Jonathan Chiu,
Charles M. Kahn,
Thorsten Koeppl
We analyze the value proposition and limitations of decentralized finance (DeFi). Based on a distributed ledger and smart contracts, DeFi can guarantee the execution of financial contracts, potentially lowering the costs of intermediation and improving financial inclusion.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Digital currencies and fintech,
Payment clearing and settlement systems
JEL Code(s):
G,
G2
Forecasting Banks’ Corporate Loan Losses Under Stress: A New Corporate Default Model
Technical Report No. 122
Gabriel Bruneau,
Thibaut Duprey,
Ruben Hipp
We present a new corporate default model, one of the building blocks of the Bank of Canada’s bank stress-testing infrastructure. The model is used to forecast corporate loan losses of the Canadian banking sector under stress.
Content Type(s):
Staff research,
Technical reports
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
How does the Bank of Canada’s balance sheet impact the banking system?
Staff Analytical Note 2022-12
Daniel Bolduc-Zuluaga,
Brad Howell,
Grahame Johnson
We examine how changes in the Bank of Canada’s balance sheet impact the banking system. Quantitative easing contributed to an increase in the size of the banking system’s balance sheet and an improvement in bank liquidity coverage ratios. Quantitative tightening is expected to partially reverse these impacts. The banking system will have to adjust its liquidity management strategy in response.
Content Type(s):
Staff research,
Staff analytical notes
Topic(s):
Financial institutions,
Financial stability,
Monetary policy
JEL Code(s):
E,
E5,
E51,
G,
G2,
G21,
G23,
G3,
G32
COVID-19 and Financial Stability: Practice Ahead of Theory
Staff Discussion Paper 2022-18
Jing Yang,
Hélène Desgagnés,
Grzegorz Halaj,
Yaz Terajima
The COVID-19 pandemic uncovered policy challenges related to the economic measures that were taken to support the economy. Two years later, we attempt to identify the broader impact of these measures and research that needs to follow.
Content Type(s):
Staff research,
Staff discussion papers
Topic(s):
Coronavirus disease (COVID-19),
Financial stability,
Financial system regulation and policies
JEL Code(s):
E,
E5,
E58,
E6,
E61,
G,
G2,
G21,
H,
H3,
H8,
H84
BoC–BoE Sovereign Default Database: What’s new in 2022?
Staff Analytical Note 2022-11
David Beers,
Elliot Jones,
Karim McDaniels,
Zacharie Quiviger
The BoC–BoE database of sovereign debt defaults, published and updated annually by the Bank of Canada and the Bank of England, provides comprehensive estimates of stocks of government obligations in default.
Content Type(s):
Staff research,
Staff analytical notes
Topic(s):
Debt management,
Development economics,
Financial stability,
International financial markets
JEL Code(s):
F,
F3,
F34,
G,
G1,
G10,
G14,
G15