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Can securities be settled on a blockchain and, if so, what are the gains relative to existing settlement systems? We consider a blockchain that ensures delivery versus payment by linking transfers of assets with payments and operates using a proof-of-work protocol. The main benefit of a blockchain is faster and more flexible settlement, whereas the challenge is to avoid settlement fails when participants fork the chain to get rid of trading losses.

Recent years have seen renewed interest in the regulation of interbank markets. A review of the literature in this area identifies two gaps: first, the literature has tended to make ad hoc assumptions about the interbank contract space, which makes it difficult to generate convincing policy prescriptions; second, the literature has tended to focus on ex-post interventions that kick in only after an interbank disruption has come underway (e.g., open-market operations, lender-of-last-resort interventions, bail-outs), rather than ex-ante prudential policies.

A model of over-the-counter markets is proposed. Some asset buyers are informed in that they can identify high quality assets. Heterogeneous sellers with private information choose what type of buyers they want to trade with.

Understanding the nature of credit risk has important implications for financial stability. Since authorities – notably, central banks – focus on risks that have systemic implications, it is crucial to develop ways to measure these risks.

Our stress-testing tool considers banks under stress that can strategically manage their balance sheets. Using confidential Canadian supervisory data, we assess whether bank behaviour to maximize shareholder value can amplify a hypothetical stress scenario.

Recent years have witnessed the advances of e-money systems such as Bitcoin, PayPal and various forms of stored-value cards. This paper adopts a mechanism design approach to identify some essential features of different payment systems that implement and improve the constrained optimal resource allocation.

The paper examines three equity-based structural models to study the nonlinear relationship between equity and credit default swap (CDS) prices. These models differ in the specification of the default barrier.

When financial system vulnerabilities are elevated, they can give rise to asymmetric risks to the economic outlook. To illustrate this, I consider the economic outlook presented in the Bank of Canada’s October 2017 Monetary Policy Report in the context of two key financial system vulnerabilities: high levels of household indebtedness and housing market imbalances.

We measure systemic risk in the network of financial market infrastructures (FMIs) as the probability that two or more FMIs have a large credit risk exposure to the same FMI participant.

How can policy-makers avoid large policy errors when they are uncertain about the true model of the economy?