Central Bank Liquidity Facilities and Market Making
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.
Financial institutions
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Quantifying the Economic Benefits of Payments Modernization: the Case of the Large-Value Payment System
Canada is undertaking a major initiative to modernize its payments ecosystem. The modernized ecosystem is expected to bring significant benefits to Canadian financial markets and the overall economy. We develop an empirical framework to quantify the economic benefits of modernizing the payment system in Canada. -
Monetary Policy Spillover to Small Open Economies: Is the Transmission Different under Low Interest Rates?
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. -
The Countercyclical Capital Buffer and International Bank Lending: Evidence from Canada
We examine the impact of the CCyB on foreign lending activities of Canadian banks. We show that the announcement of a tightening in another country’s CCyB leads to a decrease in the growth rate of cross-border lending between Canadian banks and borrowers in that other country. -
November 23, 2021
Checking up on Canada’s financial system
Deputy Governor Paul Beaudry speaks about the strength and resilience of the financial system throughout the COVID-19 pandemic and economic recovery. He also outlines key vulnerabilities and risks going forward. -
November 23, 2021
Financial stability through the pandemic and beyond
Deputy Governor Paul Beaudry provides an update on financial vulnerabilities and risks in Canada, including those stemming from the COVID-19 pandemic. -
Are Bank Bailouts Welfare Improving?
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. -
Systemic Risk and Portfolio Diversification: Evidence from the Futures Market
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. -
A Q-Theory of Banks
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. -
Reaching for yield or resiliency? Explaining the shift in Canadian pension plan portfolios
“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.