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This article focuses on a quantitative method to identify financial system vulnerabilities, specifically, an imbalance indicator model (IIM) and its application to Canada. An IIM identifies potential vulnerabilities in a financial system by comparing current economic and financial data with data from periods leading up to past episodes of financial stress. It complements other sources of information - including market intelligence and regular monitoring of the economy - that policy-makers use to assess vulnerabilities.

The financial transaction tax (FTT) is a policy idea with a long history that, in the wake of the global financial crisis, has attracted renewed interest in some quarters. This article examines the evidence of the impact of an FTT on market quality and explores a few of the practical issues surrounding the implementation of an FTT. Proponents argue that an FTT will generate substantial tax revenues and reduce market volatility. The majority of the empirical evidence, however, supports the arguments of opponents of the tax who assert that an FTT reduces volume and liquidity and increases volatility. In addition, there are numerous challenges in implementing an FTT, which may reduce the intended revenues. Whether an FTT is beneficial hinges on its effect on market quality and its ability to raise revenues. However, there are many unanswered questions regarding its design.

The MacroFinancial Risk Assessment Framework (MFRAF) models the interconnections between liquidity and solvency in a financial system, with multiple institutions linked through an interbank network. The MFRAF integrates funding liquidity risk as an endogenous outcome of the interactions between solvency risk and the liquidity profiles of banks, which is a complementary approach to the new […]