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269 Results

Central Bank Digital Currencies and Banking: Literature Review and New Questions

We review the nascent but fast-growing literature on central bank digital currencies (CBDCs), focusing on their potential impacts on private banks. We evaluate these impacts in three areas of traditional banking: payments, lending and liquidity and maturity transformation. We also take a broader look at CBDCs and highlight two promising directions for future research.

Stress Relief? Funding Structures and Resilience to the Covid Shock

Staff Working Paper 2023-7 Kristin Forbes, Christian Friedrich, Dennis Reinhardt
Funding structures affected the amount of financial stress different countries and sectors experienced during the spread of COVID-19 in early 2020. Policy responses targeting specific vulnerabilities were more effective at mitigating this stress than those supporting banks or the economy more broadly.

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.

Improving the Efficiency of Payments Systems Using Quantum Computing

We develop an algorithm and run it on a hybrid quantum annealing solver to find an ordering of payments that reduces the amount of system liquidity necessary without substantially increasing payment delays.

Potential benefits and key risks of fiat-referenced cryptoassets

Staff Analytical Note 2022-20 Hugh Ding, Natasha Khan, Bena Lands, Cameron MacDonald, Laura Zhao
Cryptoassets that reference a national currency (commonly known as stablecoins) aim to peg their value to the reference currency and typically use a reserve of traditional financial assets to maintain the peg. The market value of these fiat-referenced cryptoassets has grown more than thirtyfold between early 2020 and mid-2022. We explore some of their potential benefits and key risks.

Regulatory Requirements of Banks and Arbitrage in the Post-Crisis Federal Funds Market

Staff Working Paper 2022-48 Rodney J. Garratt, Sofia Priazhkina
This paper explains the nature of interest rates in the U.S. federal funds market after the 2007-09 financial crisis. We build a model of the over-the-counter lending market that incorporates new aspects of the financial system: abundance of liquidity, different regulatory standards for banks, and arbitrage opportunities created by limited access to the facility granting interest on excess reserves.

Stablecoins and Their Risks to Financial Stability

Staff Discussion Paper 2022-20 Cameron MacDonald, Laura Zhao
What risks could stablecoins pose to the financial system? We argue that the stabilization mechanisms of stablecoins give rise to the risk of confidence runs, which can propagate to broader cryptoasset markets and the traditional financial sector. We also argue that stablecoins can contribute to financial stability risks by facilitating the buildup of leverage and liquidity mismatch in decentralized finance. Such risks cannot be addressed by ensuring the price stability of stablecoins alone. Finally, we explore the potential implications of stablecoins for the current system of bank-intermediated credit and for monetary policy.

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.
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