Financial institutions and intermediation

• Relationships in the Interbank Market

  Staff working paper 2016-33 Jonathan Chiu, Cyril Monnet

  In the interbank market, banks will sometimes trade below the central bank's deposit rate. We explain this anomaly using a theory based on market frictions and relationship lending.

  Content Type(s): Staff research, Staff working papers JEL Code(s): E, E4, E5 Research Theme(s): Financial markets and funds management, Market functioning, Financial system, Financial institutions and intermediation, Models and tools, Economic models, Monetary policy, Monetary policy tools and implementation

• Financial Inclusion—What’s it Worth?

  Staff working paper 2016-30 Miguel Ampudia, Michael Ehrmann

  The paper studies the determinants of being unbanked in the euro area and the United States as well as the effects of being unbanked on wealth accumulation. Based on household-level data from The Eurosystem Household Finance and Consumption Survey and the U.S. Survey of Consumer Finances, it first documents that there are, respectively, 3.6 per cent and 7.5 per cent of unbanked households in the two economies.

  Content Type(s): Staff research, Staff working papers JEL Code(s): D, D1, D14, G, G2, G21, G28 Research Theme(s): Financial system, Financial institutions and intermediation, Financial stability and systemic risk, Household and business credit

• Implementing Market-Based Indicators to Monitor Vulnerabilities of Financial Institutions

  Staff analytical note 2016-5 Cameron MacDonald, Maarten van Oordt, Robin Scott

  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.

  Content Type(s): Staff research, Staff analytical notes JEL Code(s): G, G1, G10, G2, G21 Research Theme(s): Financial system, Financial institutions and intermediation, Financial stability and systemic risk

• Timing of Banks’ Loan Loss Provisioning During the Crisis

  Staff working paper 2016-27 Leo de Haan, Maarten van Oordt

  We estimate a panel error correction model for loan loss provisions, using unique supervisory data on flow of funds into and out of the allowance for loan losses of 25 Dutch banks in the post-2008 crisis period. We find that these banks aim for an allowance of 49% of impaired loans.

  Content Type(s): Staff research, Staff working papers JEL Code(s): G, G0, G01, G2, G21, G3, G32 Research Theme(s): Financial system, Financial institutions and intermediation, Financial stability and systemic risk

• Opaque Assets and Rollover Risk

  Staff working paper 2016-17 Benjamin Nelson, Toni Ahnert

  We model the asset-opacity choice of an intermediary subject to rollover risk in wholesale funding markets. Greater opacity means investors form more dispersed beliefs about an intermediary’s profitability.

  Content Type(s): Staff research, Staff working papers JEL Code(s): G, G0, G01, G2 Research Theme(s): Financial markets and funds management, Market functioning, Financial system, Financial institutions and intermediation, Financial stability and systemic risk

• Asset Encumbrance, Bank Funding and Financial Fragility

  Staff working paper 2016-16 Kartik Anand, Prasanna Gai, James Chapman, Toni Ahnert

  In this piece we show that a limit on the level of asset encumbrance and minimum capital requirements are effective tools for minimizing the incentive for banks to take excessive risk.

  Content Type(s): Staff research, Staff working papers JEL Code(s): D, D8, D82, G, G0, G01, G2, G21, G28 Research Theme(s): Financial system, Financial institutions and intermediation, Financial stability and systemic risk, Financial system regulation and oversight

• Capital Structure, Pay Structure and Job Termination

  Staff working paper 2016-12 Jason Allen, James R. Thompson

  We develop a model to analyze the link between financial leverage, worker pay structure and the risk of job termination. Contrary to the conventional view, we show that even in the absence of any agency problem among workers, variable pay can be optimal despite workers being risk averse and firms risk neutral.

  Content Type(s): Staff research, Staff working papers JEL Code(s): G, G2, G24, J, J3, J33 Research Theme(s): Financial markets and funds management, Market functioning, Financial system, Financial institutions and intermediation, Household and business credit, Models and tools, Economic models

• Canadian Repo Market Ecology

  Staff discussion paper 2016-8 Corey Garriott, Kyle Gray

  This is the first of the Financial Markets Department’s descriptions of Canadian financial industrial organization. The document discusses the organization of the repurchase-agreement (repo) market in Canada.

  Content Type(s): Staff research, Staff discussion papers JEL Code(s): G, G1, G18, G2, G21, G23 Research Theme(s): Financial markets and funds management, Market functioning, Market structure, Financial system, Financial institutions and intermediation, Financial system regulation and oversight