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233 Results

Are Bank Bailouts Welfare Improving?

Staff Working Paper 2021-56 Malik Shukayev, Alexander Ueberfeldt
Financial sector bailouts, while potentially beneficial during a crisis, might lead to excessive risk taking if anticipated. Taking expectations and aggregate risk implications into account, we show that bailouts can be welfare improving, but only if capital adequacy constraints are sufficiently tight.

Systemic Risk and Portfolio Diversification: Evidence from the Futures Market

Staff Working Paper 2021-50 Radoslav Raykov
This paper explores how the Canadian futures market contributed to banks’ systemic risk during the 2008 financial crisis. It finds that core banks as a whole traded against the periphery, in this way increasing their risk of simultaneous losses.
Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets JEL Code(s): G, G1, G10, G2, G20

A Q-Theory of Banks

Using stock market data on banks, we show that the book value of loans recognizes losses with a delay. This delayed accounting is important for regulation because the requirements regulators impose are based on book values.

Reaching for yield or resiliency? Explaining the shift in Canadian pension plan portfolios

“Reach for yield”—This is the commonly heard explanation for why pension plans shift their portfolios toward alternative assets. But we show that the new portfolios also hold more bonds, offer lower average returns and produce smaller and less volatile solvency deficits. These shifts are part of a broader strategy to reduce solvency risk.

Centralizing Over-the-Counter Markets?

Staff Working Paper 2021-39 Jason Allen, Milena Wittwer
Would a shift in trading in fixed-income markets—from over the counter (bilateral trading) to a centralized electronic platform—improve welfare? We use trade-level data on the secondary market for Government of Canada debt to answer this question.

The Positive Case for a CBDC

Staff Discussion Paper 2021-11 Andrew Usher, Edona Reshidi, Francisco Rivadeneyra, Scott Hendry
We discuss the competition and innovation arguments for issuing a central bank digital currency (CBDC). A CBDC could be an effective competition policy tool for payments. A CBDC could also support the vibrancy of the digital economy. It could help solve market failures and foster competition and innovation in new digital payments markets.

Stressed but not Helpless: Strategic Behaviour of Banks Under Adverse Market Conditions

Staff Working Paper 2021-35 Grzegorz Halaj, Sofia Priazhkina
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.

Analyzing supply and demand for business loans using microdata from the Senior Loan Officer Survey

Staff Analytical Note 2021-13 Dylan Hogg
Both supply and demand factors help determine the level of business lending in the economy, but most data show only their combined effect on prices and quantities. Using the Bank of Canada’s Senior Loan Officer Survey microdata on financial institutions’ lending conditions and demand, we separate supply from demand effects.

Bank Runs, Bank Competition and Opacity

Staff Working Paper 2021-30 Toni Ahnert, David Martinez-Miera
How is the stability of the financial sector affected by competition in the deposit market and by decisions banks make about transparency? We find that policies that aim to increase bank competition lead to higher bank deposit rates, increasing both withdrawal incentives and instability.

COVID-19 crisis: Liquidity management at Canada’s largest public pension funds

We examine how the eight largest Canadian public pension funds managed liquidity during the market turmoil in March 2020. The funds were generally resilient to large demands for liquidity and relied heavily on Canada's core funding markets.
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