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196 Results

How Banks Create Gridlock to Save Liquidity in Canada's Large Value Payment System

Staff Working Paper 2023-26 Rodney J. Garratt, Zhentong Lu, Phoebe Tian
We show how participants in Canada’s new high-value payment system save liquidity by exploiting the new gridlock resolution arrangement. The findings have important implications for the design of these systems and shed light on financial institutions’ liquidity preference.

A Review of the Bank of Canada’s Market Operations related to COVID-19

Staff Discussion Paper 2023-6 Grahame Johnson
This paper reviews the range of extraordinary programs launched by the Bank of Canada in response to the pandemic-related financial market disruption. It provides some recommendations for future interventions to ensure the programs are appropriately structured for the financial and economic stresses they are intended to address.

We Didn’t Start the Fire: Effects of a Natural Disaster on Consumers’ Financial Distress

We use detailed consumer credit data to investigate the impact of the 2016 Fort McMurray wildfire, the costliest wildfire disaster in Canadian history, on consumers’ financial stress. We focus on the arrears of insured mortgages because of their important implications for financial institutions and insurers’ business risk and relevant management practices.

The Role of Intermediaries in Selection Markets: Evidence from Mortgage Lending

This paper looks at the role mortgage brokers play in helping borrowers generate quotes and qualify for credit. We find that, on average, borrowers that engage with a mortgage broker pay lower interest rates. However, in about 15% of cases, borrowers are steered towards longer amortizing mortgages than they would have chosen absent a broker. Since mortgages with longer amortization have higher total interest costs over the entire life of the mortgage, this steering is expensive.

Mandatory Retention Rules and Bank Risk

Staff Working Paper 2023-3 Yuteng Cheng
This paper studies, theoretically and empirically, the unintended consequences of mandatory retention rules in securitization. It proposes a novel model showing that while retention strengthens monitoring, it may also encourage banks to shift risk.

Geographical and Cultural Proximity in Retail Banking

This paper measures how both geographical and cultural proximity of bank branches affect household credit choice and pricing. For credit products that require high levels of ex-ante screening, we find that both proximities can complement each other in reducing the cost of providing soft information, thereby increasing credit access.
November 22, 2022

Tracking the financial vulnerabilities of households and the housing market

The Bank of Canada is publishing a new set of indicators of financial vulnerabilities. This will allow households, the private sector, financial authorities and governments to better understand and monitor the evolution of two key vulnerabilities in the financial system: the elevated level of household indebtedness and high house prices.

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.

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.

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.
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