Staff analytical notes

• Creations and Redemptions in Fixed-Income Exchange-Traded Funds: A Shift from Bonds to Cash

  Staff Analytical Note 2019-34 Rohan Arora, Sébastien Betermier, Guillaume Ouellet Leblanc, Adriano Palumbo, Ryan Shotlander

  The creation and redemption activity of fixed-income exchange-traded funds listed in the United States has shifted. Funds of established issuers have traditionally exchanged their shares for baskets of bonds. In contrast, young funds managed by new issuers tend to create and redeem their shares almost exclusively in cash. Cash transactions imply that new funds are taking on exposure to liquidity risk. This has implications for financial stability.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets, Financial stability JEL Code(s): G, G1, G2, G20, G23

• Furor over the Fed : Presidential Tweets and Central Bank Independence

  Staff Analytical Note 2019-33 Antoine Camous, Dmitry Matveev

  We illustrate how market data can be informative about the interactions between monetary and fiscal policy. Federal funds futures are private contracts that reflect investor’s expectations about monetary policy decisions.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Central bank research, Credibility, Financial markets, Monetary policy JEL Code(s): E, E4, E44, E5, E52, E58

• The Cyber Incident Landscape

  Staff Analytical Note 2019-32 Nikil Chande, Dennis Yanchus

  The Canadian financial system is vulnerable to cyber threats. But for many firms, cyber risk is difficult to quantify. We examine public information on past cyber incidents to better understand the current risk landscape and find that a holistic view is needed to fully grasp the nature of this risk.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets, Financial stability JEL Code(s): G, G2, G28, M, M1, M15, O, O3, O33, O38

• 2018 Merchant Acceptance Survey

  Staff Analytical Note 2019-31 Kim Huynh, Gradon Nicholls, Mitchell Nicholson

  In 2015, the Bank of Canada surveyed merchants and found that cash was nearly universally accepted (Fung, Huynh and Kosse 2017). Since 2015, retail payments in Canada have become increasingly digitalized, as many Canadians have adopted digital payment innovations like contactless cards and Interac e-Transfer.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Bank notes, Digital currencies and fintech, Econometric and statistical methods JEL Code(s): C, C8, D, D2, D22, E, E4, L, L2

• Assessment of Liquidity Creation in the Canadian Banking System

  Staff Analytical Note 2019-30 Annika Gnann, Sahika Kaya

  Liquidity creation is a fundamental function of banks. It provides the public with easy access to funds. These funds are important because they allow households and businesses to consume and invest. In this note, we measure liquidity creation by Canadian financial institutions from the first quarter of 2012 to the second quarter of 2019, using a methodology suggested by Berger and Bouwman (2009) and known as the BB measure.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial institutions, Financial stability, Monetary and financial indicators JEL Code(s): G, G2, G21, G28, G3, G32

• Cashless Bank Branches in Canada

  Staff Analytical Note 2019-29 Walter Engert, Ben Fung

  Cashless or tellerless bank branches have proliferated in several countries in recent years. In a cashless bank branch, teller or counter services such as cash withdrawals, deposits and cheque-cashing are not available.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Bank notes, Digital currencies and fintech, Financial services JEL Code(s): E, E4, E41, E42, E5, E51

• Borrowing Costs for Government of Canada Treasury Bills

  Staff Analytical Note 2019-28 Jabir Sandhu, Adrian Walton, Jessica Lee

  The cost of borrowing Government of Canada treasury bills (t-bills) in the repurchase (repo) market is mainly explained by the relationship between the parties involved. Some pairs of parties conduct most of their repos for t-bills rather than bonds, and at relatively high borrowing costs. We speculate that these pairs have formed a mutually beneficial service relationship in which one party consistently receives t-bills, while the other receives cash at a relatively cheap rate.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets JEL Code(s): G, G1, G10, G11, G12, G2, G20, G21, G23, G3, G32

• Home Equity Extraction and Household Spending in Canada

  Staff Analytical Note 2019-27 Anson T. Y. Ho, Mikael Khan, Monica Mow, Brian Peterson

  We use rich microdata to measure home equity extraction in Canada and track its evolution over time. We find home equity extraction has been rising in recent years and has likely contributed materially to dynamics in household spending.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial stability, Housing JEL Code(s): D, D1, D12, E, E2, E21, G, G2, G20

• Bridging Canadian Business Lending and Market-Based Risk Measures

  Staff Analytical Note 2019-26 Guillaume Ouellet Leblanc, Maxime Leboeuf

  Lending to business is central to economic growth because it supports investment by firms. Knowing how market participants view risk in the financial system can give the Bank of Canada information about future growth in business loans. In this note, we look at three market-based risk measures and find that sudden increases in the perception of risk in the Canadian banking system are associated with a weaker outlook for business loans and real gross domestic product.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Business fluctuations and cycles, Financial markets JEL Code(s): E, E3, E32, E4, E44, G, G1, G12

• Using Exchange-Traded Funds to Measure Liquidity in the Canadian Corporate Bond Market

  Staff Analytical Note 2019-25 Rohan Arora, Guillaume Ouellet Leblanc, Jabir Sandhu, Jun Yang

  We introduce a new proxy for measuring corporate bond liquidity, using the price of exchange-traded funds (ETFs) that hold corporate bonds. It measures the average liquidity across 900 corporate bonds every day, many more than other proxies used in previous Bank of Canada analysis. The new proxy nonetheless paints a very similar picture of liquidity conditions and confirms the previous findings: the liquidity of bonds has generally improved since 2010.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets JEL Code(s): G, G1, G12, G14