Financial markets

• The Optimum Quantity of Central Bank Reserves

  Staff Working Paper 2025-15 Jonathan Witmer

  This paper analyzes the optimal quantity of central bank reserves in an economy where reserves and other financial assets provide liquidity benefits. Using a static model, I derive a constrained Friedman rule that characterizes the socially optimal level of reserves, demonstrating that this quantity is neither necessarily large nor small but depends on the marginal benefits of reserves relative to alternative safe assets.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Financial markets, Financial system regulation and policies, Monetary policy implementation JEL Code(s): E, E4, E41, E42, E5, E58, G, G2, G21, G28

• Are Hedge Funds a Hedge for Increasing Government Debt Issuance?

  Staff Discussion Paper 2025-7 Adam Epp, Jeffrey Gao

  This paper studies the rapid increase since 2019 of Government of Canada (GoC) debt issuance alongside greater hedge fund participation at GoC bond auctions. We find a systematic relationship between GoC debt stock and hedge fund bidding shares at auction.

  Content Type(s): Staff research, Staff discussion papers Research Topic(s): Debt management, Financial institutions, Financial markets, Financial stability JEL Code(s): D, D4, D44, G, G1, G12, G2, G23, H, H6, H63
• May 8, 2025

  Release of the Financial Stability Report

  Opening statement Tiff Macklem, Carolyn Rogers Ottawa, Ontario

  Press conference following the release of the Financial Stability Report.

  Content Type(s): Press, Speeches and appearances, Opening statements Research Topic(s): Business fluctuations and cycles, Debt management, Financial institutions, Financial markets, Financial stability, Financial system regulation and policies, International financial markets, Recent economic and financial developments

• Risk-Free Uncollateralized Lending in Decentralized Markets: An Introduction to Flash Loans

  Staff Discussion Paper 2025-6 Jack Mandin

  A flash loan is a special type of uncollateralized loan with zero default risk. I document the use for flash loans across major blockchains that are Ethereum-Virtual-Machine-compatible. Flash loans expand access to liquidity, and highly sophisticated actors use them for many practical applications.

  Content Type(s): Staff research, Staff discussion papers Research Topic(s): Digital currencies and fintech, Financial markets JEL Code(s): G, G0, G1, G2
• March 17, 2025

  Will asset managers dash for cash? A summary of the implications for central banks

  David Cimon, Jean-Philippe Dion, Jean-Sébastien Fontaine, Jabir Sandhu

  We consider ways central banks could adapt in the event of an increased risk of a dash for cash from asset managers. We explore ideas such as new facilities that ease asset managers’ ability to convert existing assets to cash or new assets with liquidity that central banks would guarantee.

  Content Type(s): Publications, Financial System Hub articles Research Topic(s): Central bank research, Coronavirus disease (COVID-19), Financial institutions, Financial markets, Financial stability, Financial system regulation and policies JEL Code(s): E, E5, E58, G, G0, G00, G01, G1, G2

• Will Asset Managers Dash for Cash? Implications for Central Banks

  Staff Discussion Paper 2025-5 David Cimon, Jean-Philippe Dion, Jean-Sébastien Fontaine, Jabir Sandhu

  We consider ways central banks could adapt in the event of an increased risk of a dash for cash from asset managers. We explore ideas such as new facilities that ease asset managers’ ability to convert existing assets to cash or new assets with liquidity that central banks would guarantee.

  Content Type(s): Staff research, Staff discussion papers Research Topic(s): Central bank research, Coronavirus disease (COVID-19), Financial institutions, Financial markets, Financial stability, Financial system regulation and policies JEL Code(s): E, E5, E58, G, G0, G00, G01, G1, G2

• Stress testing central counterparties for resolution planning

  Staff Analytical Note 2025-11 Katherine Brennan, Bo Young Chang, Alper Odabasioglu, Radoslav Raykov

  The Bank of Canada completed its first resolution plan for the Canadian Derivatives and Clearing Corporation (CDCC) in 2024. To estimate the resolution costs, we apply the extreme value theory method to simulate the credit losses that would result from extreme scenarios where multiple clearing members default at the same time.

  Content Type(s): Staff research, Staff analytical notes Research Topic(s): Financial institutions, Financial markets, Financial stability, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): G, G1, G17, G2, G23, G28

• Is anyone surprised? The high-frequency impact of US and domestic macroeconomic data announcements on Canadian asset prices

  Staff Analytical Note 2025-10 Blake DeBruin Martos, Rodrigo Sekkel, Henry Stern, Xu Zhang

  Using almost two decades of detailed high-frequency data, we show how Canadian interest rates, the CAD/USD spot exchange rate, and stock market returns react to both US and domestic macro announcements. We find that Canadian macroeconomic announcements invoke greater responses in short-term yields, whereas US macroeconomic announcements play an increasingly important role in the yield movements of longer-term assets.

  Content Type(s): Staff research, Staff analytical notes Research Topic(s): Asset pricing, Exchange rates, Financial markets JEL Code(s): G, G1, G14, G15

• Crisis facilities as a source of public information

  Staff Analytical Note 2025-7 Lerby Ergun

  During the COVID-19 financial market crisis, central banks introduced programs to support liquidity in important core funding markets. As well as acting as a backstop to market prices, these programs produce useful trading data on prevailing market conditions. When summary information from this data is shared publicly, it can help market participants understand current conditions and aid the recovery of market functioning.

  Content Type(s): Staff research, Staff analytical notes Research Topic(s): Financial institutions, Financial markets, Market structure and pricing JEL Code(s): C, C5, C58, D, D5, D53, D8, D83, G, G1, G12, G14

• The new repo tri-party Canadian Collateral Management Service: Benefits to the financial system and to the Bank of Canada

  Staff Analytical Note 2025-6 Philippe Muller, Maksym Padalko

  The Canadian Collateral Management Service (CCMS) is a new tri-party collateral management service offered by the TMX Group and Clearstream. CCMS will enhance Canada’s financial infrastructure for securities financing transactions, including for the repurchase, or repo, market that is a core funding market in Canada. We explain the importance of the repo market and describe the benefits of the CCMS for market participants and for the Bank of Canada.

  Content Type(s): Staff research, Staff analytical notes Research Topic(s): Financial institutions, Financial markets, Market structure and pricing JEL Code(s): G, G1, G2, G23