Financial institutions

• Monetary Policy Transmission, Bank Market Power, and Wholesale Funding Reliance

  Staff Working Paper 2023-35 Amina Enkhbold

  I study how banking market concentration and reliance on wholesale funding affect monetary policy transmission to mortgage rates. I find that this transmission is imperfect and dampens the response of consumption, output, and housing prices.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Inflation targets, Monetary policy transmission, Wholesale funding JEL Code(s): E, E4, E44, E5, E52, G, G2, G21
• May 18, 2023

  Release of the Financial System Review

  Opening statement Tiff Macklem, Carolyn Rogers Ottawa, Ontario

  Press conference following the release of the Financial System Review.

  Content Type(s): Press, Speeches and appearances, Opening statements Topic(s): Financial institutions, Financial markets, Financial stability, Financial system regulation and policies, Interest rates, International financial markets, Recent economic and financial developments, Wholesale funding
• May 4, 2023

  Getting inflation back to 2%

  Speech summary Tiff Macklem Toronto Region Board of Trade Toronto, Ontario

  Governor Tiff Macklem explains that higher interest rates are working to slow inflation but warns that getting all the way back to the 2% target may take time. He also discusses the recent stress in the global banking sector and how financial stability and price stability work together.

  Content Type(s): Press, Speeches and appearances, Speech summaries Topic(s): Expectations, Financial institutions, Financial stability, Financial system regulation and policies, Inflation and prices, Inflation targets, International financial markets, Monetary policy, Price stability, Service sector

• How Banks Create Gridlock to Save Liquidity in Canada's Large Value Payment System

  Staff Working Paper 2023-26 Rodney J. Garratt, Zhentong Lu, Phoebe Tian

  We show how participants in Canada’s new high-value payment system save liquidity by exploiting the new gridlock resolution arrangement. The findings have important implications for the design of these systems and shed light on financial institutions’ liquidity preference.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E58, G, G2, G21
• May 4, 2023

  Staying the course to price stability

  Remarks Tiff Macklem Toronto Region Board of Trade Toronto, Ontario

  Governor Tiff Macklem explains how monetary policy is working to bring inflation down and outlines the challenges ahead. He also discusses recent stress in the global banking sector and how financial stability and price stability interact.

  Content Type(s): Press, Speeches and appearances, Remarks Topic(s): Expectations, Financial institutions, Financial stability, Financial system regulation and policies, Inflation and prices, Inflation targets, International financial markets, Monetary policy, Price stability, Service sector

• From LVTS to Lynx: Quantitative Assessment of Payment System Transition

  Staff Working Paper 2023-24 Ajit Desai, Zhentong Lu, Hiru Rodrigo, Jacob Sharples, Phoebe Tian, Nellie Zhang

  We quantitatively assess the changes in participants’ payment behaviour from modernizing Canada's high-value payments system to Lynx. Our analysis suggests that Lynx's liquidity-saving mechanism encourages liquidity pooling and early payments submission, resulting in improved efficiency for participants but with slightly increased payment delays.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial services, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): C, C1, C10, E, E4, E42, G, G2, G28

• The Role of Intermediaries in Selection Markets: Evidence from Mortgage Lending

  Staff Working Paper 2023-12 Jason Allen, Robert Clark, Jean-François Houde, Shaoteng Li, Anna Trubnikova

  This paper looks at the role mortgage brokers play in helping borrowers generate quotes and qualify for credit. We find that, on average, borrowers that engage with a mortgage broker pay lower interest rates. However, in about 15% of cases, borrowers are steered towards longer amortizing mortgages than they would have chosen absent a broker. Since mortgages with longer amortization have higher total interest costs over the entire life of the mortgage, this steering is expensive.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial services, Market structure and pricing JEL Code(s): D, D4, G, G2, G21, L, L2

• Central Bank Digital Currencies and Banking: Literature Review and New Questions

  Staff Discussion Paper 2023-4 James Chapman, Jonathan Chiu, Mohammad Davoodalhosseini, Janet Hua Jiang, Francisco Rivadeneyra, Yu Zhu

  We review the nascent but fast-growing literature on central bank digital currencies (CBDCs), focusing on their potential impacts on private banks. We evaluate these impacts in three areas of traditional banking: payments, lending and liquidity and maturity transformation. We also take a broader look at CBDCs and highlight two promising directions for future research.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Central bank research, Digital currencies and fintech, Financial institutions, Financial stability JEL Code(s): E, E5, E50, E58, G, G0, G00, L, L0, L00

• Stress Relief? Funding Structures and Resilience to the Covid Shock

  Staff Working Paper 2023-7 Kristin Forbes, Christian Friedrich, Dennis Reinhardt

  Funding structures affected the amount of financial stress different countries and sectors experienced during the spread of COVID-19 in early 2020. Policy responses targeting specific vulnerabilities were more effective at mitigating this stress than those supporting banks or the economy more broadly.

  Content Type(s): Staff research, Staff working papers Topic(s): Coronavirus disease (COVID-19), Exchange rates, Financial institutions, Financial stability, Financial system regulation and policies, International topics JEL Code(s): E, E4, E44, E6, E65, F, F3, F31, F36, F4, F42, G, G1, G18, G2, G23, G3, G38

• Mandatory Retention Rules and Bank Risk

  Staff Working Paper 2023-3 Yuteng Cheng

  This paper studies, theoretically and empirically, the unintended consequences of mandatory retention rules in securitization. It proposes a novel model showing that while retention strengthens monitoring, it may also encourage banks to shift risk.

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