Search

Bank regulation presumes risks spill over more easily from large banks to the banking system than vice versa. Interestingly, we observe this is not the case. We find that the capacity to transmit risk is larger in the system-to-bank direction, leading to an increased default risk.

We create a theoretical model of central bank asset purchases. The model helps explain how, in a crisis, these purchases ease pressures on investment dealers.

We study how different types of monetary policy shape the distributional effects of external economic shocks on households’ consumption in a small open economy. Our results present a trade-off between maintaining overall stabilization and controlling consumption inequality.

Does the transmission of monetary policy change when interest rates are low or negative? We shed light on this question by analyzing the international bank lending channels of monetary policy using regulatory data on banks from four small open economies: Canada, Chile, the Czech Republic and Norway.

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.

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.

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.

“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.

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.

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.