Are Bank Bailouts Welfare Improving? Staff working paper 2021-56 Malik Shukayev, Alexander Ueberfeldt Financial sector bailouts, while potentially beneficial during a crisis, might lead to excessive risk taking if anticipated. Taking expectations and aggregate risk implications into account, we show that bailouts can be welfare improving, but only if capital adequacy constraints are sufficiently tight. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): D, D6, D62, E, E3, E32, E4, E44, G, G0, G01 Research Theme(s): Financial system, Financial institutions and intermediation, Financial stability and systemic risk, Financial system regulation and oversight, Models and tools, Economic models
Systemic Risk and Portfolio Diversification: Evidence from the Futures Market Staff working paper 2021-50 Radoslav Raykov This paper explores how the Canadian futures market contributed to banks’ systemic risk during the 2008 financial crisis. It finds that core banks as a whole traded against the periphery, in this way increasing their risk of simultaneous losses. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Financial markets JEL Code(s): G, G1, G10, G2, G20 Research Theme(s): Financial markets and funds management, Market functioning, Market structure, Financial system, Financial institutions and intermediation, Financial stability and systemic risk
A Q-Theory of Banks Staff working paper 2021-44 Juliane Beganau, Saki Bigio, Jeremy Majerovitz, Matías Vieyra Using stock market data on banks, we show that the book value of loans recognizes losses with a delay. This delayed accounting is important for regulation because the requirements regulators impose are based on book values. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): E, E4, E44, G, G2, G21, G3, G32, G33 Research Theme(s): Financial system, Financial institutions and intermediation, Financial stability and systemic risk, Models and tools, Economic models, Monetary policy, Monetary policy framework and transmission
Reaching for yield or resiliency? Explaining the shift in Canadian pension plan portfolios Staff analytical note 2021-20 Sébastien Betermier, Nicholas Byrne, Jean-Sébastien Fontaine, Hayden Ford, Jason Ho, Chelsea Mitchell “Reach for yield”—This is the commonly heard explanation for why pension plans shift their portfolios toward alternative assets. But we show that the new portfolios also hold more bonds, offer lower average returns and produce smaller and less volatile solvency deficits. These shifts are part of a broader strategy to reduce solvency risk. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Financial institutions, Financial markets, Financial system regulation and policies JEL Code(s): G, G1, G11 Research Theme(s): Financial markets and funds management, Market functioning, Financial system, Financial institutions and intermediation, Financial stability and systemic risk
Centralizing Over-the-Counter Markets? Staff working paper 2021-39 Jason Allen, Milena Wittwer Would a shift in trading in fixed-income markets—from over the counter (bilateral trading) to a centralized electronic platform—improve welfare? We use trade-level data on the secondary market for Government of Canada debt to answer this question. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Market structure and pricing JEL Code(s): D, D4, D40, D47, G, G1, G10, G2, G20, L, L1, L10 Research Theme(s): Financial markets and funds management, Market functioning, Market structure, Financial system, Financial institutions and intermediation
Stressed but not Helpless: Strategic Behaviour of Banks Under Adverse Market Conditions Staff working paper 2021-35 Grzegorz Halaj, Sofia Priazhkina Our stress-testing tool considers banks under stress that can strategically manage their balance sheets. Using confidential Canadian supervisory data, we assess whether bank behaviour to maximize shareholder value can amplify a hypothetical stress scenario. Content Type(s): Staff research, Staff working papers Research Topic(s): Central bank research, Economic models, Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): C, C6, C63, C7, C72, G, G2, G21 Research Theme(s): Financial system, Financial institutions and intermediation, Financial stability and systemic risk, Models and tools, Economic models, Monetary policy, Monetary policy tools and implementation
Bank Runs, Bank Competition and Opacity Staff working paper 2021-30 Toni Ahnert, David Martinez-Miera How is the stability of the financial sector affected by competition in the deposit market and by decisions banks make about transparency? We find that policies that aim to increase bank competition lead to higher bank deposit rates, increasing both withdrawal incentives and instability. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Financial markets, Financial stability, Financial system regulation and policies, Wholesale funding JEL Code(s): G, G0, G01, G2, G21 Research Theme(s): Financial markets and funds management, Market structure, Financial system, Financial institutions and intermediation, Financial stability and systemic risk, Financial system regulation and oversight
COVID-19 crisis: Liquidity management at Canada’s largest public pension funds Staff analytical note 2021-11 Guillaume Bédard-Pagé, Daniel Bolduc-Zuluaga, Annick Demers, Jean-Philippe Dion, Manu Pandey, Léanne Berger-Soucy, Adrian Walton We examine how the eight largest Canadian public pension funds managed liquidity during the market turmoil in March 2020. The funds were generally resilient to large demands for liquidity and relied heavily on Canada's core funding markets. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Coronavirus disease (COVID-19), Financial institutions, Financial markets JEL Code(s): E, E5, E58, G, G0, G01, G2, G23 Research Theme(s): Financial markets and funds management, Market functioning, Financial system, Financial institutions and intermediation, Financial stability and systemic risk
Non-bank financial intermediation in Canada: a pulse check Staff analytical note 2021-2 Rohan Arora, Guillaume Bédard-Pagé, Philippe Besnier, Hayden Ford, Alan Walsh The Canadian non-bank financial intermediation (NBFI) sector saw strong growth in 2018 and 2019. In 2020, COVID‑19 caused a financial shock. We provide a preliminary analysis on the impact of COVID‑19 on the sector as well as an update on its growth. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Coronavirus disease (COVID-19), Financial institutions, Financial markets, Financial stability JEL Code(s): G, G0, G01, G2, G20, G23 Research Theme(s): Financial system, Financial institutions and intermediation, Financial stability and systemic risk
Imperfect Banking Competition and Macroeconomic Volatility: A DSGE Framework Staff working paper 2021-12 Jiaqi Li How do banks adjust their loan rate markup in response to macroeconomic shocks? Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Financial institutions, Interest rates JEL Code(s): E, E3, E32, E4, E44, G, G2, G21, L, L1, L13 Research Theme(s): Financial system, Financial institutions and intermediation, Models and tools, Economic models, Monetary policy, Monetary policy framework and transmission