G2 - Financial Institutions and Services

• Why Do Shoppers Use Cash? Evidence from Shopping Diary Data

  Staff Working Paper 2012-24 Naoki Wakamori, Angelika Welte

  Recent studies find that cash remains a dominant payment choice for small-value transactions despite the prevalence of alternative means of payment such as debit and credit cards. For policy makers an important question is whether consumers truly prefer using cash or merchants restrict card usage.

  Content Type(s): Staff research, Staff working papers Topic(s): Bank notes, Econometric and statistical methods, Financial services JEL Code(s): C, C2, D, D1, G, G2

• The Ex-Ante Versus Ex-Post Effect of Public Guarantees

  Staff Working Paper 2012-22 H. Evren Damar, Reint Gropp, Adi Mordel

  In October 2006, Dominion Bond Rating Service (DBRS) introduced new ratings for banks that account for the potential of government support. The rating changes are not a reflection of any changes in the respective banks’ credit fundamentals.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): G, G2, G21, G28, G3, G32

• Consumer Bankruptcy and Information

  Staff Working Paper 2012-18 Jason Allen, H. Evren Damar, David Martinez-Miera

  We analyze the relationship between the intensity of banks’ use of soft-information and household bankruptcy patterns. Using a unique data set on the universe of Canadian household bankruptcies, we document that bankruptcy rates are higher in markets where the collection of soft, or qualitative locally gathered information, is the weakest.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial services JEL Code(s): D, D4, G, G2

• On the Existence and Fragility of Repo Markets

  Staff Working Paper 2012-17 Hajime Tomura

  This paper presents a model of an over-the-counter bond market in which bond dealers and cash investors arrange repurchase agreements (repos) endogenously.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Financial stability, Payment clearing and settlement systems JEL Code(s): G, G2, G24
• May 17, 2012

  Understanding Systemic Risk in the Banking Sector: A MacroFinancial Risk Assessment Framework

  Bank of Canada Review - Spring 2012 Céline Gauthier, Moez Souissi

  The MacroFinancial Risk Assessment Framework (MFRAF) models the interconnections between liquidity and solvency in a financial system, with multiple institutions linked through an interbank network. The MFRAF integrates funding liquidity risk as an endogenous outcome of the interactions between solvency risk and the liquidity profiles of banks, which is a complementary approach to the new […]

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial stability, Financial system regulation and policies JEL Code(s): E, E4, E44, G, G0, G01, G2, G21
• May 17, 2012

  Conference Summary: New Developments in Payments and Settlement

  Bank of Canada Review - Spring 2012 Ben Fung, Miguel Molico

  The Bank of Canada’s annual conference, held in November 2011, brought together leading researchers from universities, central banks and other institutions from around the world. Divided into four sessions plus two keynote addresses, the conference covered such topics as the use of cash and other means of payment in retail transactions, large-value payments systems, and […]

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Bank notes, Central bank research, Financial system regulation and policies, Monetary policy implementation, Payment clearing and settlement systems JEL Code(s): E, E4, E42, G, G2, G28, L, L8, L81

• A Note on Central Counterparties in Repo Markets

  Staff Discussion Paper 2012-4 Hajime Tomura

  The author introduces a central counterparty (CCP) into a model of a repo market. Without the CCP, there exist multiple equilibria in the model. In one of the equilibria, a repo market emerges as bond dealers and cash investors choose to arrange repos in an over-the-counter bond market.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Financial markets, Financial stability, Payment clearing and settlement systems JEL Code(s): G, G2, G24

• When Is It Less Costly for Risky Firms to Borrow? Evidence from the Bank Risk- Taking Channel of Monetary Policy

  Staff Working Paper 2012-10 Teodora Paligorova, João Santos

  In an investigation of banks’ loan pricing policies in the United States over the past two decades, this study finds supporting evidence for the bank risk-taking channel of monetary policy. We show that banks charge lower spreads when they lend to riskier borrowers relative to the spreads they charge on loans to safer borrowers in periods of low short-term rates compared to periods of high short-term rates.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Monetary policy framework JEL Code(s): G, G2, G21
• February 23, 2012

  Household Insolvency in Canada

  Bank of Canada Review - Winter 2011-2012 Jason Allen, H. Evren Damar

  With increasing levels of household debt in recent years, the number of households that may be vulnerable to a negative economic shock is rising as well. Decisions made by both the debtor and the creditor can contribute to insolvency. This article presents some stylized facts about insolvency in Canada’s household sector and analyzes the role of creditors in insolvencies. The average debt of an individual filing for bankruptcy is more than 1.5 times that of an average Canadian household; bankruptcy filers tend to be unemployed or in low-wage jobs, and are typically renters. The article reports that banks that approve more loans per branch, which is interpreted as less-intensive use of soft information (such as the loan officer’s assessment of the applicant’s character), experience more client bankruptcies. This finding has important policy implications, because financial institutions that do not use soft information risk further deterioration in their lending portfolios.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial institutions, Financial services JEL Code(s): D, D4, G, G2

• Price Competition and Concentration in Search and Negotiation Markets: Evidence from Mortgage Lending

  Staff Working Paper 2012-4 Jason Allen, Robert Clark, Jean-François Houde

  This paper examines the impact of bank consolidation on mortgage rates in order to evaluate the extent to which mortgage markets are competitive. Mortgage markets are decentralized and so rates are determined through a search and negotiation process.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial services, Interest rates JEL Code(s): G, G2, L, L1