G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
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June 12, 2014
Stress Testing the Canadian Banking System: A System-Wide Approach
Stress testing is an important tool used by financial authorities and entities around the world to evaluate potential risks to the financial system. Kartik Anand, Guillaume Bédard-Pagé and Virginie Traclet discuss different stress-testing approaches, with emphasis on the innovative and analytically rigorous model developed by the Bank of Canada: the MacroFinancial Risk Assessment Framework (MFRAF). They also present the stress-test results obtained in the context of the 2013 Canada Financial Sector Assessment Program led by the International Monetary Fund, including the important contributions made by the use of MFRAF in the exercise. -
Rollover Risk and the Maturity Transformation Function of Banks
This paper shows that banks that rely heavily on short-term funding engage less in maturity transformation in an attempt to decrease their exposure to rollover risk. These banks shorten both the maturity of their portfolio of loans as well as the maturity of newly issued loans. We find that the loan yield curve becomes steeper with banks’ increasing use of short-term funding. -
Banks’ Financial Distress, Lending Supply and Consumption Expenditure
The paper employs a unique identification strategy that links survey data on household consumption expenditure to bank-level data in order to estimate the effects of bank financial distress on consumer credit and consumption expenditures. -
Household Risk Management and Actual Mortgage Choice in the Euro Area
Mortgages constitute the largest part of household debt. An essential choice when taking out a mortgage is between fixed-interest-rate mortgages (FRMs) and adjustable-interest-rate mortgages (ARMs). However, so far, no comprehensive cross‐country study has analyzed what determines household demand for mortgage types, a task that this paper takes up using new data for the euro area. -
Funding Advantage and Market Discipline in the Canadian Banking Sector
We employ a comprehensive data set and a variety of methods to provide evidence on the magnitude of large banks’ funding advantage in Canada, and on the extent to which market discipline exists across different securities issued by the Canadian banks. -
Lessons from the Financial Crisis: Bank Performance and Regulatory Reform
The financial systems of some countries fared materially better than others during the global financial crisis of 2007-09. -
Business Cycle Effects of Credit Shocks in a DSGE Model with Firm Defaults
This paper proposes a theoretical framework to analyze the relationship between credit shocks, firm defaults and volatility, and to study the impact of credit shocks on business cycle dynamics. -
Méthodologie de construction de séries de taux de défaut pour l’industrie canadienne
Default rates are series commonly used in stress testing. In Canada, as in many other countries, there are no historical series available for sectoral default rates on bank loans to firms. -
Consumer Interest Rates and Retail Mutual Fund Flows
This paper documents a link between the real and financial sides of the economy. We find that retail equity mutual fund flows in Canada are negatively related to current and past changes in a component of the prime and 5-year mortgage rates that is uncorrelated with government rates.