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This paper develops a stress-testing framework in which banks strategically adjust their balance sheets in response to regulatory constraints and market conditions. Applied to Canada’s largest banks, it quantifies the effects of macroprudential policies on lending and identifies systemic vulnerabilities through reverse stress testing.

In a dynamic model with limited commitment, aggregate payout-based compensation induces managers to raise outside equity yet invest too little today. Per-share compensation eliminates the dilution motive and restores efficient investment, but it does so through slower capital accumulation that better protects incumbent shareholder value.

The rise and transformation of Canadian cash ETFs highlight that banking liquidity regulation affects more than bank resilience. By changing the relative attractiveness of deposits and securities, it can shape where asset managers allocate their cash across the financial system.

This note examines whether central clearing of repos benefits non-dealer participants in Canadian fixed-income markets. While prior research highlights lower funding and balance-sheet costs for dealers, less is known about client effects. Understanding these broader implications is important for assessing central clearing’s contribution to market efficiency and resilience.

This paper studies how a central bank should design a CBDC when private payment providers collect and monetize transaction data. It characterizes the optimal CBDC’s pricing and data policy, and shows how its effects on private payment use and total data depend on market power and data externalities.

This policy note examines how a non-interest-bearing retail central bank digital currency (CBDC) could affect the financial stability of Canada’s systemically important banks during a severe recession. Stress test results show that the banks remain resilient, maintaining key regulatory ratios even under high CBDC demand.

We study access to Canadian retail banking and cash services in rural, localized markets using the Bresnahan-Reiss entry threshold framework. We find that the first retail banking services branch entry requires about 500 residents in an average market, whereas the first cash services location requires about 80 residents.

Sovereign borrowing is rising, just as central banks are stepping back. Meanwhile, commercial bank holdings of sovereign bonds remain well below pre-global financial crisis levels. This leaves foreign investors and investment funds, often hedge funds, to absorb more of this growing supply. Their greater involvement supports liquidity and robust auction results, but it can also concentrate risk.

This paper reviews recent efforts to monitor and assess systemic risk in the Canadian financial system and outlines a framework for future system-wide stress testing.

The Standing Liquidity Facility (SLF) is one of the Bank of Canada’s least discussed tools—and one of its most important. Embedded directly in Canada’s high value payment system, Lynx, the SLF operates quietly in the background every business day, ensuring the smooth settlement of payments and reinforcing the implementation of monetary policy.