Do hedge funds support liquidity in the Government of Canada bond market? Staff Analytical Note 2023-11 Jabir Sandhu, Rishi Vala While Government of Canada bond transactions of hedge funds are typically in the opposite direction to those of other market participants, during the peak period of market turmoil in March 2020, hedge funds sold these bonds, just as other market participants did. This shows that hedge funds can at times contribute to one-sided markets and amplify declines in market liquidity. Content Type(s): Staff research, Staff analytical notes Topic(s): Coronavirus disease (COVID-19), Financial markets, Financial stability, Market structure and pricing JEL Code(s): D, D4, D47, D5, D53, G, G1, G12, G14, G2, G23
Monetary Policy Transmission, Bank Market Power, and Wholesale Funding Reliance Staff Working Paper 2023-35 Amina Enkhbold I study how banking market concentration and reliance on wholesale funding affect monetary policy transmission to mortgage rates. I find that this transmission is imperfect and dampens the response of consumption, output, and housing prices. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Inflation targets, Monetary policy transmission, Wholesale funding JEL Code(s): E, E4, E44, E5, E52, G, G2, G21
Privacy-Preserving Post-Quantum Credentials for Digital Payments Staff Working Paper 2023-33 Raza Ali Kazmi, Duc-Phong Le, Cyrus Minwalla Digital payments and decentralized systems enable the creation of new financial products and services for users. One core challenge in digital payments is the need to protect users from fraud and abuse while retaining privacy in individual transactions. We propose a pseudonymous credential scheme for use in payment systems to tackle this problem. Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Digital currencies and fintech, Payment clearing and settlement systems JEL Code(s): E, E4, E42, G, G2, G21, O, O3, O31
Crowdfunding and Risk Staff Working Paper 2023-28 David Cimon Crowdfunding may enable unique products to reach the consumer market. I model a crowdfunding technology that publicly screens consumer demand early in the production process. In this model, entrepreneurs like crowdfunding for risky projects where demand is uncertain, but not for large, safe projects or for projects where production costs are uncertain. Content Type(s): Staff research, Staff working papers Topic(s): Digital currencies and fintech, Financial markets, Financial services JEL Code(s): G, G2, G21, G24, G3, G32
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. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E58, G, G2, G21
From LVTS to Lynx: Quantitative Assessment of Payment System Transition Staff Working Paper 2023-24 Ajit Desai, Zhentong Lu, Hiru Rodrigo, Jacob Sharples, Phoebe Tian, Nellie Zhang We quantitatively assess the changes in participants’ payment behaviour from modernizing Canada's high-value payments system to Lynx. Our analysis suggests that Lynx's liquidity-saving mechanism encourages liquidity pooling and early payments submission, resulting in improved efficiency for participants but with slightly increased payment delays. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial services, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): C, C1, C10, E, E4, E42, G, G2, G28
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. Content Type(s): Staff research, Staff discussion papers Topic(s): Coronavirus disease (COVID-19), Financial markets, Financial stability JEL Code(s): D, D4, D47, E, E4, E41, E5, G, G0, G01, G1, G14, G2, G21, G23, H, H1, H12
We Didn’t Start the Fire: Effects of a Natural Disaster on Consumers’ Financial Distress Staff Working Paper 2023-15 Anson T. Y. Ho, Kim Huynh, David T. Jacho-Chávez, Geneviève Vallée 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. Content Type(s): Staff research, Staff working papers Topic(s): Climate change, Credit and credit aggregates, Econometric and statistical methods, Financial stability JEL Code(s): C, C2, C21, D, D1, D12, G, G2, G21, Q, Q5, Q54
The Role of Intermediaries in Selection Markets: Evidence from Mortgage Lending Staff Working Paper 2023-12 Jason Allen, Robert Clark, Jean-François Houde, Shaoteng Li, Anna Trubnikova 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. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial services, Market structure and pricing JEL Code(s): D, D4, G, G2, G21, L, L2
Exporting and Investment Under Credit Constraints Staff Working Paper 2023-10 Kim Huynh, Robert Petrunia, Joel Rodrigue, Walter Steingress We examine the relationship between firms’ performance and credit constraints affecting export market entry. Using administrative Canadian firm-level data, our findings show that new exporters (a) increase their productivity, (b) raise their leverage ratio and (c) increase investment. We estimate that 48 percent of Canadian manufacturers face binding credit constraints when deciding whether to enter export markets. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Firm dynamics, International topics, Productivity JEL Code(s): F, F1, F10, F14, F3, F36, G, G2, G20, G28, G3, G32