November 12, 1997 Clearing and settlement systems and the Bank of Canada Bank of Canada Review - Autumn 1997 Clyde Goodlet Clearing and settlement systems are essential to the smooth functioning of a modern market-based economy such as Canada's. During the past decade, there have been significant efforts in Canada and abroad to improve electronic clearing and settlement systems that handle payments obligations, either uniquely or in conjunction with transactions related to the purchase and sale of a broad range of financial instruments such as debt, equity, foreign exchange, or derivatives. This article examines some of the risks faced by participants and end-users of these systems and reviews the Bank of Canada's role in relation to these systems. For a number of years, the Bank has been involved informally with major clearing and settlement systems with a view to ensuring that systemic risk is adequately controlled. In July 1996, the Payment Clearing and Settlement Act was proclaimed. This Act formalized the role of the Bank in the oversight of clearing and settlement systems for the purpose of controlling systemic risk. The article provides an overview of the Bank's responsibilities. It also describes certain new powers that the Act made available to the Bank that could be exercised in its dealings with clearing and settlement systems. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Payment clearing and settlement systems
August 14, 1997 The fiscal impact of privatization in Canada Bank of Canada Review - Summer 1997 Mylène Levac, Philip Wooldridge Privatization—the transfer of activities from the public to the private sector—gained international prominence in the 1980s because of the need to reduce budget deficits and growing concerns about the efficiency of state-owned enterprises and government bureaucracies. This article examines privatization in Canada and its effect on governments' fiscal positions. Privatization has generally been less rapid and extensive in Canada than elsewhere, partly because of the comparatively moderate size of our public sector. Nevertheless, federal, provincial, and municipal governments have increasingly reduced their direct involvement in the Canadian economy by selling Crown corporations, contracting with private firms to deliver public services, and transferring the development of public infrastructure projects to the private sector. The fiscal impact of privatizing Crown corporations varies with such factors as the profitability of the enterprise, the size of the government's initial investment, and past write-downs. In general, when privatizations are part of a broader effort to improve public finances, they can contribute to fiscal consolidation by reducing budgetary requirements and debt levels. When services and infrastructure projects are privatized, it is expected that more efficient private sector management will reduce government expenditures. For example, a private consortium may be better able to manage the financial risks involved in building an infrastructure facility, such as cost overruns or the withdrawal of contractors, than the public sector. The key to raising efficiency and lowering costs, however, is competition, not privatization per se. Therefore, the cost savings arising from the privatization of services or public works depend crucially on the terms of the contract. Overall, when structured to improve economic efficiency, privatization is likely to enhance the economy's performance, thereby producing long-term economic and budgetary gains. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Fiscal policy
August 14, 1997 Bank of Canada Review - Summer 1997 Cover page Samuel Zimmerman and the Zimmerman Bank This note is part of the National Currency Collection, Bank of Canada. Photography by James Zagon. Content Type(s): Publications, Bank of Canada Review
August 13, 1997 The new bank note distribution system Bank of Canada Review - Summer 1997 Gerrit Bilkes In this article, the author outlines the recent changes made to the way Canada's bank notes are distributed. The new system allows financial institutions to exchange notes directly with one another at designated points across the country, rather than through Bank of Canada agencies, as was previously the case. The institutions communicate with the Bank of Canada through a computerized inventory-management system. Two Bank of Canada operations centres monitor note quality and supply new notes to the financial institutions. While the Bank continues to maintain firm control over the distribution of Canada's bank notes, the management of information rather than physical notes will improve efficiency and allow significant cost savings to the Bank of Canada and to the government. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Bank notes, Financial institutions
May 20, 1997 Monetary Policy Report – May 1997 Since the last Report, the Canadian economy has advanced broadly in line with expectations. Content Type(s): Publications, Monetary Policy Report
May 14, 1997 The changing business activities of banks in Canada Bank of Canada Review - Spring 1997 Jim Armstrong Over the last 30 years, the business mix of banks in Canada has changed significantly. Progress in information-processing technology, legislative changes, and market forces have combined to blur the traditional distinctions between banks and other financial institutions and have allowed banks to offer a much wider range of products and services. In this article, the author reviews the expansion of bank lending to households over this period and their recent movement into personal wealth management. While these trends were facilitated by revisions to legislation, they also reflected the changing needs of the "baby boom" generation, first as home-buyers and, more recently, as middle-aged investors. On the commercial and corporate side, banks reacted to the rapid expansion of securities markets (and to the reduced demand for intermediation by both lenders/depositors and borrowers) by moving into investment banking, after legislative changes opened this business to them in the late 1980s. They also used their expertise in credit assessment and risk management to provide credit guarantees and to act as counterparties and intermediaries in derivatives markets. Notable in this broadening of bank activities has been their more recent entry into the trust, mutual fund, and retail brokerage business. The banks have also made preliminary forays into insurance. The expansion of off-balance-sheet activities has made fee income an increasingly important part of bank earnings. The article also looks at the emerging tools and techniques that will most likely transform the structure of banking in the future. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial institutions
May 14, 1997 Bank of Canada Review - Spring 1997 Cover page Japanese oban Photography by James Zagon. Content Type(s): Publications, Bank of Canada Review
May 13, 1997 Capacity constraints, price adjustment, and monetary policy Bank of Canada Review - Spring 1997 Tiff Macklem The short-run Phillips curve describes a positive short-run relationship between the level of economic activity and inflation. When the level of demand in the economy as a whole runs ahead of the level of output that the economy can supply in the short run, price pressures increase and inflation rises. This article reviews the origins of the short-run Phillips curve with particular emphasis on the long-standing idea that the shape of this curve may be non-linear, with inflation becoming more sensitive to changes in output when the cycle of economic activity is high than when it is low. This type of non-linearity in the short-run Phillips curve, which is typically motivated by the effects of capacity constraints that limit the ability of the economy to expand in the short run, has recently attracted renewed attention. The article surveys recent research that finds some evidence of this type of non-linearity in the Phillips curve in Canada and considers the potential implications for monetary policy. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Inflation and prices, Monetary policy transmission, Potential output
January 14, 1997 Annual Report 1996 In 1996 inflation remained within the Bank’s target range but was subject to downward pressure. The low rate of inflation contributed to a major easing in monetary conditions, and interest rates reached their lowest level in 30 years. Content Type(s): Publications, Annual Report
January 11, 1997 Bank of Canada Review - Winter 1996-1997 Cover page P.N. Breton, Canadian numismatist The book, pamphlet, and advertising piece shown are part of the National Currency Collection, Bank of Canada. Photography by James Zagon. Content Type(s): Publications, Bank of Canada Review