Financial system regulation and policies
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A Macroprudential Theory of Foreign Reserve Accumulation
This paper proposes a theory of foreign reserves as macroprudential policy. We study an open-economy model of financial crises in which pecuniary externalities lead to overborrowing, and show that by accumulating international reserves, the government can achieve the constrained-efficient allocation. -
Financial Frictions, Durable Goods and Monetary Policy
Financial frictions affect how much consumers spend on durable and non-durable goods. Borrowers can face both loan-to-value (LTV) constraints and payment-to-income (PTI) constraints. -
Flight from Safety: How a Change to the Deposit Insurance Limit Affects Households’ Portfolio Allocation
Deposit insurance protects depositors from failing banks, thus making insured deposits risk-free. When a deposit insurance limit is increased, some deposits that previously were uninsured become insured, thereby increasing the share of risk-free assets in households’ portfolios. This increase cannot simply be undone by households, because to invest in uninsured deposits, a household must first invest in insured deposits up to the limit. This basic insight is the starting point of the analysis in this paper. -
Canadian Securities Lending Market Ecology
This is the fourth of the Financial Markets Department’s descriptions of Canadian financial industrial organization. The paper discusses the organization of the securities lending market in Canada. We outline key characteristics of securities lending contracts, participants in the securities lending market, the market infrastructures that support securities lending activities, and aggregated statistics describing the Canadian market. -
May 16, 2019
Release of the Financial System Review
Press conference following the release of the Financial System Review. -
Disentangling the Factors Driving Housing Resales
We use a recently developed model and loan-level micro data to decompose movements in housing resales since 2015. We find that fundamental factors, namely housing affordability and full-time employment, have had offsetting effects on resales over our study period. -
March 14, 2019
The Age of Leverage
Senior Deputy Governor Carolyn A. Wilkins discusses how high leverage is both a headwind to global growth and a vulnerability in the global financial system. -
Macroprudential Policy with Capital Buffers
The countercyclical capital buffer is part of Basel III, the set of regulatory measures developed in response to the financial crisis of 2007–09. This study focuses on how time-varying capital buffers can address inefficiencies in economies with endogenous financial crises. -
Macroprudential FX Regulations: Shifting the Snowbanks of FX Vulnerability?
Can macroprudential foreign exchange (FX) regulations on banks reduce the financial and macroeconomic vulnerabilities created by borrowing in foreign currency? To evaluate the effectiveness and unintended consequences of macroprudential FX regulations, we develop a parsimonious model of bank and market lending in domestic and foreign currency and derive four predictions. -
Calibrating the Magnitude of the Countercyclical Capital Buffer Using Market-Based Stress Tests
How much capital do banks need as a buffer to absorb severe shocks? By using historical stock market data, market-based stress tests help estimate the magnitude of capital buffers necessary to absorb severe but plausible shocks.