Financial institutions

• Is This Normal? The Cost of Assuming that Derivatives Have Normal Returns

  Staff Working Paper 2024-46 Radoslav Raykov

  Derivatives exchanges often determine collateral requirements, which are fundamental to market safety, with dated risk models assuming normal returns. However, derivatives returns are heavy-tailed, which leads to the systematic under-collection of collateral (margin). This paper uses extreme value theory (EVT) to evaluate the cost of this margin inadequacy to market participants in the event of default.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial stability JEL Code(s): G, G1, G10, G11, G2, G20
• November 6, 2024

  Canada’s mortgage market—A question of balance

  Remarks Carolyn Rogers Economic Club of Canada Toronto, Ontario

  Senior Deputy Governor Carolyn Rogers looks at the mortgage market in Canada—past, present and future.

  Content Type(s): Press, Speeches and appearances, Remarks Topic(s): Financial institutions, Financial services, Financial stability, Financial system regulation and policies, Housing, Monetary policy transmission
• November 6, 2024

  Finding balance in the mortgage market

  Speech summary Carolyn Rogers Economic Club of Canada Toronto, Ontario

  Senior Deputy Governor Carolyn Rogers talks about Canada’s mortgage market and how it has evolved over time.

  Content Type(s): Press, Speeches and appearances, Speech summaries Topic(s): Financial institutions, Financial services, Financial stability, Financial system regulation and policies, Housing, Monetary policy transmission

• Mortgage stress tests and household financial resilience under monetary policy tightening

  Staff Analytical Note 2024-25 Jonathan Hartley, Nuno Paixão

  This note analyzes mortgage stress tests, a macroprudential tool. We find that when mortgage stress tests are applied to all mortgage purchase originations, they improve credit quality and reduce credit and house price growth. They also improve the resilience of borrowers to financial shocks, such as the large increase in interest rates during 2022–23.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Credit and credit aggregates, Financial institutions, Financial system regulation and policies, Monetary policy JEL Code(s): E, E5, E52, G, G2, G21, G28, G5, G50, G51

• Entry and Exit in Treasury Auctions

  Staff Working Paper 2024-29 Jason Allen, Ali Hortaçsu, Eric Richert, Milena Wittwer

  This paper introduces and estimates a structural model of the Canadian primary market for government debt. We assess the role of dealer exit in this market as a key reason for increased, yet irregular, customer entry and quantify the benefits of greater customer competition against the costs of higher market volatility.

  Content Type(s): Staff research, Staff working papers Topic(s): Debt management, Financial institutions, Financial markets, Market structure and pricing JEL Code(s): D, D4, D44, D47, G, G1, G12, G2, G28

• The reliance of Canadians on credit card debt as a predictor of financial stress

  Staff Analytical Note 2024-18 Jia Qi Xiao

  I analyze the relationship between carrying a credit card balance and future financial stress. I find that carrying a balance significantly increases the likelihood that credit card holders miss future debt payments. This likelihood tends to rise as credit card balances grow and are held for long periods.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Credit and credit aggregates, Financial institutions, Interest rates, Recent economic and financial developments JEL Code(s): D, D1, E, E4, E5, G, G2, G21

• Could all-to-all trading improve liquidity in the Government of Canada bond market?

  Staff Analytical Note 2024-17 Jabir Sandhu, Rishi Vala

  We find that on any given day, nearly half of Government of Canada bond transactions by clients of dealers can be offset with other clients, including during the turmoil in March 2020. Our results show that under certain conditions clients could potentially trade directly with each other and are a step towards understanding the relevance of broader all-to-all trading in the Government of Canada bond market.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Coronavirus disease (COVID-19), Financial institutions, Financial markets, Financial stability, Market structure and pricing JEL Code(s): D, D4, D47, D5, D53, G, G0, G01, G1, G12, G13, G14, G2, G21, G23

• How big is cash-futures basis trading in Canada’s government bond market?

  Staff Analytical Note 2024-16 Andreas Uthemann, Rishi Vala

  Cash-futures basis trading has grown alongside the Government of Canada bond futures market. We examine this growth over time in relation to Government of Canada bond and repurchase agreement markets and provide details on the type of market participants that engage in this type of trading activity.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial institutions, Financial markets, Financial stability, Market structure and pricing JEL Code(s): D, D4, D47, D5, D53, G, G1, G12, G2, G23

• Non-bank financial intermediation: Canada’s submission to the 2023 global monitoring report

  Staff Analytical Note 2024-15 Malcolm Fisher, Alan Walsh

  We share insights from Canadian data from 2002 to 2022 that the Bank of Canada collected. The Bank submits these data each year to the Financial Stability Board for inclusion in its Global Monitoring Report on Non-Bank Financial Intermediation.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial institutions, Sectoral balance sheet JEL Code(s): G, G2, G21, G22, G23

• Central Bank Liquidity Policy in Modern Times

  Staff Discussion Paper 2024-6 Skylar Brooks

  Across several dimensions of lender of last resort policy, I highlight broad changes that have occurred since the 2008–09 global financial crisis and discuss some of the key challenges, choices and considerations facing the designers of central bank liquidity tools today.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Central bank research, Financial institutions, Financial markets, Financial stability, Lender of last resort JEL Code(s): D, D5, D53, E, E5, E58, E6, E61, G, G0, G01, G2, G21, G23, H, H1, H12