The COVID-19 pandemic uncovered policy challenges related to the economic measures that were taken to support the economy. Two years later, we attempt to identify the broader impact of these measures and research that needs to follow.
We examine systemic risks within the Canadian banking sector, decomposing them into three contribution channels: contagion, common exposures, and idiosyncratic risk. Through a structural model, we dissect how interbank relationships and market conditions contribute to systemic risk, providing new insights for financial stability.
Our stress-testing tool considers banks under stress that can strategically manage their balance sheets. Using confidential Canadian supervisory data, we assess whether bank behaviour to maximize shareholder value can amplify a hypothetical stress scenario.
Raising liquidity when funding is stressed creates pressure on the financial market. Liquidating large quantities of assets depresses their prices and may amplify funding shocks. How do banks weathering a funding crisis contribute to contagion risk?
How do banks' interconnections in the euro area contribute to the vulnerability of the banking system? We study both the direct interconnections (banks lend to each other) and the indirect interconnections (banks are exposed to similar sectors of the economy). These complex linkages make the banking system more vulnerable to contagion risks.
