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BIS interbank lending data show that the Great Recession generated large and persistent changes in the international interbank lending positions of various countries. The main objective of this study is to understand the role of changes in international interbank credit flows in transmitting shocks across borders.

Household debt can be an important source of vulnerability to the financial system. This technical report describes the Household Risk Assessment Model (HRAM) that has been developed at the Bank of Canada to stress test household balance sheets at the individual level.

This paper proposes a practical approach to address the procyclicality of initial margin at central counterparties (CCPs) that can work even in periods of extreme stress. The approach allows CCPs to limit the speed of margin increases resulting from spikes in market volatility.

This paper combines loan-level administrative data with household-level survey data to analyze the impact of recent macroprudential policy changes in Canada using a microsimulation model of mortgage demand of first-time homebuyers.

This note examines the merits of monetary policy adjustments in response to financial stability concerns, taking into account changes in the state of knowledge since the renewal of the inflation-targeting agreement in 2011. A key financial system vulnerability in Canada is elevated household indebtedness: as more and more households are nearing their debt-capacity limits, the likelihood and severity of a large negative correction in housing markets are also increasing.

During the period of 2008 to 2012, the rules for government-backed mortgage insurance were tightened on four occasions. In this note, we estimate the effects through a simple econometric exercise using a vector error-correction model (VECM).

Interconnectedness among insurers and reinsurers at a global level is not well understood and may pose a significant risk to the sector, with implications for the macroeconomy. Models of the complex interactions among reinsurers and with other participants in the financial system and the real economy are at a very early stage of development.

This paper analyzes the implications of the global financial cycle for conventional and unconventional monetary policies and macroprudential policy in small, open economies such as Canada. The paper starts by summarizing recent work on financial cycles and their growing correlation across borders.

The recent financial crisis has led to the development of new regulations to control risk in designated payment systems, and the implementation of new credit risk management standards is one of the key issues. In this paper, we study various credit risk management schemes for the Canadian retail payment system (ACSS) that are designed to cover the exposure of a defaulting member.

We estimate a continuous-time model with stochastic volatility and dynamic crash probability for the S&P 500 index and find that market illiquidity dominates other factors in explaining the stock market crash risk. While the crash probability is time-varying, its dynamic depends only weakly on return variance once we include market illiquidity as an economic variable in the model.