G - Financial Economics

• June 9, 2016

  Securities Financing and Bond Market Liquidity

  Financial System Review - June 2016 Jean-Sébastien Fontaine, Corey Garriott, Kyle Gray

  This report investigates how the markets for repurchase agreements and securities-lending agreements support the liquidity of Canadian bond markets. It also discusses how recent regulatory changes, as well as low interest rates and settlement failures, are potentially affecting securities-financing markets and, as a result, bond market liquidity.

  Content Type(s): Publications, Financial System Review articles Topic(s): Financial markets, Financial system regulation and policies, Market structure and pricing JEL Code(s): G, G1, G12, G2
• June 9, 2016

  Large Canadian Public Pension Funds: A Financial System Perspective

  Financial System Review - June 2016 Guillaume Bédard-Pagé, Annick Demers, Eric Tuer, Miville Tremblay

  The authors review the eight largest public pension funds in Canada. These funds are an important source of retirement income for Canadians. They are also significant investors, with net assets under management of over $1 trillion. The authors outline the investment strategies of the funds and how they interact with financial institutions and participate in financial markets. They also discuss the ways in which the funds’ risk-management frameworks could contribute to financial system stability and how they minimize potential vulnerabilities.

  Content Type(s): Publications, Financial System Review articles Topic(s): Financial institutions, Financial stability, International financial markets JEL Code(s): G, G1, G11, G2, G23

• Timing of Banks’ Loan Loss Provisioning During the Crisis

  Staff Working Paper 2016-27 Leo de Haan, Maarten van Oordt

  We estimate a panel error correction model for loan loss provisions, using unique supervisory data on flow of funds into and out of the allowance for loan losses of 25 Dutch banks in the post-2008 crisis period. We find that these banks aim for an allowance of 49% of impaired loans.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial stability JEL Code(s): G, G0, G01, G2, G21, G3, G32

• On the Nexus of Monetary Policy and Financial Stability: Is the Financial System More Resilient?

  Staff Discussion Paper 2016-12 Patricia Palhau Mora, Michael Januska

  Monetary policy and financial stability are closely intertwined, and the resilience of the financial system carries weight in this relationship. This paper explores whether the financial system is more resilient as a result of the G20’s post-crisis agenda for financial regulatory reform.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Financial stability, Financial system regulation and policies, Monetary policy framework JEL Code(s): E, E5, E52, G, G0, G01, G2, G21, G23, G28

• The Impact of Bankruptcy Reform on Insolvency Choice and Consumer Credit

  Staff Working Paper 2016-26 Jason Allen, Kiana Basiri

  We examine the impact of the 2009 amendments to the Canadian Bankruptcy and Insolvency Act on insolvency decisions. Rule changes steered debtors out of division I proposals and into the more cost-effective division II proposals.

  Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Financial institutions, Financial system regulation and policies JEL Code(s): D, D1, D14, G, G2, K, K3, K35

• On the Nexus of Monetary Policy and Financial Stability: Effectiveness of Macroprudential Tools in Building Resilience and Mitigating Financial Imbalances

  Staff Discussion Paper 2016-11 H. Evren Damar, Miguel Molico

  This paper reviews the Canadian and international evidence of the effectiveness of macroprudential policy measures in building resilience and mitigating financial imbalances. The analysis concludes that these measures have broadly achieved their goal of increasing the overall resilience of the financial system to the buildup of imbalances and increasing the financial system’s ability to withstand adverse shocks.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Credit and credit aggregates, Financial stability, Financial system regulation and policies JEL Code(s): E, E5, E51, E58, G, G1, G18, G2, G28

• Estimating Systematic Risk Under Extremely Adverse Market Conditions

  Staff Working Paper 2016-22 Maarten van Oordt, Chen Zhou

  This paper considers the problem of estimating a linear model between two heavy-tailed variables if the explanatory variable has an extremely low (or high) value. We propose an estimator for the model coefficient by exploiting the tail dependence between the two variables and prove its asymptotic properties.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Financial markets JEL Code(s): C, C1, C14, G, G0, G01

• Early Warning of Financial Stress Events: A Credit-Regime-Switching Approach

  Staff Working Paper 2016-21 Fuchun Li, Hongyu Xiao

  We propose an early warning model for predicting the likelihood of a financial stress event for a given future time, and examine whether credit plays an important role in the model as a non-linear propagator of shocks.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Financial stability JEL Code(s): C, C1, C12, C14, G, G0, G01, G1, G17

• Retail Order Flow Segmentation

  Staff Working Paper 2016-20 Corey Garriott, Adrian Walton

  In August 2012, the New York Stock Exchange launched the Retail Liquidity Program (RLP), a trading facility that enables participating organizations to quote dark limit orders executable only by retail traders.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Financial system regulation and policies, Market structure and pricing JEL Code(s): G, G1, G14, G2, G20, L, L1, L10

• What to Expect When China Liberalizes Its Capital Account

  Staff Discussion Paper 2016-10 Mark Kruger, Gurnain Pasricha

  When China joined the World Trade Organization in December 2001, it marked a watershed for the world economy. Ten years from now, the opening of China’s capital account and the financial integration that will unfold will be viewed as a milestone of similar importance.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Balance of payments and components, Exchange rate regimes, International topics JEL Code(s): F, F3, F31, F32, G, G1, G18