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The authors use a dynamic general-equilibrium model to study the role financial frictions play as a transmission mechanism of Canadian monetary policy, and to evaluate the real effects of exogenous credit shocks. Financial frictions, which are modelled as spreads between deposit and loan interest rates, are assumed to depend on economic activity as well as on credit shocks.

Awareness of operational risk has increased greatly in recent years, both at individual financial institutions and for payment, clearing, and settlement systems (PCSS). PCSS consist of networks of interconnected elements (i.e., central operators, participants, and settlement agents); operational problems at any one of the key elements have the potential to disrupt the system as a whole and negatively affect financial stability.

Significant legislative developments have occurred in Canada's financial services sector over the past decade. This article chronicles those developments and gives an overview of the key provisions contained in Bill C–8, the legislation to reform the sector that came into force in October 2001. The article briefly describes some of the restructuring trends in the financial services sector since the early 1990s and the legislative changes that affected federal financial institutions over the period 1992–2001, as well as the process leading up to the 2001 legislation and some of its key provisions. The 2001 financial sector legislation was wide-ranging. It maintained the principle of wide ownership of large banks and introduced a number of changes, including a holding company option that can give greater organizational flexibility to banks and life insurance companies; the creation of the Financial Consumer Agency of Canada to enforce consumer-related provisions as they relate to federal financial institutions; and changes to the Canadian Payments Association and the access to and governance of the payments system.

Payments systems operate virtually unnoticed in our daily lives and yet are crucial to a wellfunctioning economy and financial system.

This paper examines the daily hedging and risk-management practices of financial intermediaries in the Canadian foreign exchange (FX) market.

There is a large body of literature that studies the relationship between financial structure (that is, the degree to which the financial system is either market- or intermediary-based) and long-run economic growth.

The Canadian financial industry continues to experience significant changes. This report provides an update on recent developments and re-examines a number of issues facing financial service providers that were identified in Technical Report No. 82.

This paper clarifies the role and the impact of foreign exchange dealers in the relationship between foreign exchange intervention and nominal exchange rates using a unique dataset that disaggregates trades by dealer and by type of trade.

The magnitude and frequency of recent financial crises underscore the importance of understanding financial instability for the purpose of crisis prevention and crisis management.

This paper investigates the effects of financial market consolidation on risk capital allocation in a financial institution and the implications for market liquidity in dealership markets. We show that an increase in financial market consolidation can have ambiguous effects on liquidity in foreign exchange and government securities markets.