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This note presents a composite indicator of Canadian financial system vulnerabilities—the Vulnerabilities Barometer. It aims to complement the Bank of Canada’s vulnerabilities assessment by adding a quantitative and synthesized perspective to the more granular (distributional) analysis presented in the Financial System Review.

Recent years have seen renewed interest in the regulation of interbank markets. A review of the literature in this area identifies two gaps: first, the literature has tended to make ad hoc assumptions about the interbank contract space, which makes it difficult to generate convincing policy prescriptions; second, the literature has tended to focus on ex-post interventions that kick in only after an interbank disruption has come underway (e.g., open-market operations, lender-of-last-resort interventions, bail-outs), rather than ex-ante prudential policies.

The Bank of Canada made changes to several of the tools that make up its framework for operations and liquidity provision. These changes came about after a comprehensive re-view of the framework and are designed to help the Bank better achieve its objectives of reinforcing the target for the overnight rate and supporting the well-functioning of Cana-dian financial markets under normal market conditions.

Stock market fundamentals would not seem to meaningfully predict returns over a shorter-term horizon—instead, I shift focus to severe downside risk (i.e., crashes).

This report provides a detailed technical description of the updated MacroFinancial Risk Assessment Framework (MFRAF), which replaces the version described in Gauthier, Souissi and Liu (2014) as the Bank of Canada’s stress-testing model for banks with a focus on domestic systemically important banks (D-SIBs).

Using the Bank for International Settlements (BIS) Locational Banking Statistics data on bilateral bank claims from 1995 to 2014, we analyze the impact of monetary policy on cross-border bank flows. We find that monetary policy in a source country is an important determinant of cross-border bank flows.

This paper predicts phases of the financial cycle by using a continuous financial stress measure in a Markov switching framework. The debt service ratio and property market variables signal a transition to a high financial stress regime, while economic sentiment indicators provide signals for a transition to a tranquil state.

We examine the effect of ex-post information contagion on the ex-ante level of systemic risk defined as the probability of joint bank default.

This report reviews the use of quantitative tools to gauge market participants’ assessment of banking system resilience. These measures complement traditional balance-sheet metrics and suggest that markets consider large Canadian banks to be better placed to weather adverse shocks than banks in other advanced economies. Compared with regulatory capital ratios, however, the measures suggest less improvement in banking system resilience since the pre-crisis period.

The Big Six Canadian banks are a dominant component of the Canadian financial system. How they finance their business activities is fundamental to how effective they are. Retail and commercial deposits along with wholesale funding represent the two major sources of funds for Canadian banks. What wholesale funding instruments do the Big Six banks use? How do they choose between different funding sources, funding strategies and why? How have banks changed their funding mix since the 2007–09 global financial crisis?