Household indebtedness risks in the wake of COVID‑19 Staff Analytical Note 2020-8 Olga Bilyk, Anson T. Y. Ho, Mikael Khan, Geneviève Vallée COVID-19 presents challenges for indebted households. We assess these by drawing parallels between pandemics and natural disasters. Taking into account the financial health of the household sector when the pandemic began, we run model simulations to illustrate how payment deferrals and the labour market recovery will affect mortgage defaults. Content Type(s): Staff research, Staff analytical notes Topic(s): Climate change, Coronavirus disease (COVID-19), Credit and credit aggregates, Econometric and statistical methods, Financial stability, Fiscal policy, Housing, Recent economic and financial developments, Sectoral balance sheet JEL Code(s): C, C2, C21, D, D1, D12, D14, E, E2, E24, E27, E6, E62, G, G2, G21, G28, R, R2
How Do Mortgage Rate Resets Affect Consumer Spending and Debt Repayment? Evidence from Canadian Consumers Staff Working Paper 2020-18 Katya Kartashova, Xiaoqing Zhou We study the causal effect of mortgage rate changes on consumer spending, debt repayment and defaults during an expansionary and a contractionary monetary policy episode in Canada. We find asymmetric responses of consumer durable spending, deleveraging and defaults. These findings help us to understand household sector response to interest rate changes. Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Interest rates, Monetary policy, Monetary policy transmission JEL Code(s): D, D1, D12, D14, E, E4, E43, E5, E52, G, G2, G21, R, R3, R31
The Effect of Mortgage Rate Resets on Debt: Evidence from TransUnion (Part I) Staff Analytical Note 2020-2 Katya Kartashova This note studies how decreases in mortgage rates affect the behaviour of borrowers in terms of spending on durable goods and repaying debt. Content Type(s): Staff research, Staff analytical notes Topic(s): Credit and credit aggregates, Housing, Interest rates, Monetary policy, Monetary policy transmission JEL Code(s): D, D1, D12, D14, E, E4, E43, E5, E52, G, G2, G21, R, R3, R31
Contagion in Dealer Networks Staff Working Paper 2020-1 Jean-Sébastien Fontaine, Adrian Walton Dealers connect investors who want to buy or sell securities in financial markets. Over time, dealers and investors form trading networks to save time and resources. An emerging field of research investigates how networks form. Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Market structure and pricing, Payment clearing and settlement systems JEL Code(s): E, E4, G, G1, G2, G21, L, L1, L14
Creations and Redemptions in Fixed-Income Exchange-Traded Funds: A Shift from Bonds to Cash Staff Analytical Note 2019-34 Rohan Arora, Sébastien Betermier, Guillaume Ouellet Leblanc, Adriano Palumbo, Ryan Shotlander The creation and redemption activity of fixed-income exchange-traded funds listed in the United States has shifted. Funds of established issuers have traditionally exchanged their shares for baskets of bonds. In contrast, young funds managed by new issuers tend to create and redeem their shares almost exclusively in cash. Cash transactions imply that new funds are taking on exposure to liquidity risk. This has implications for financial stability. Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets, Financial stability JEL Code(s): G, G1, G2, G20, G23
The Cyber Incident Landscape Staff Analytical Note 2019-32 Nikil Chande, Dennis Yanchus The Canadian financial system is vulnerable to cyber threats. But for many firms, cyber risk is difficult to quantify. We examine public information on past cyber incidents to better understand the current risk landscape and find that a holistic view is needed to fully grasp the nature of this risk. Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets, Financial stability JEL Code(s): G, G2, G28, M, M1, M15, O, O3, O33, O38
Loan Insurance, Market Liquidity, and Lending Standards Staff Working Paper 2019-47 Toni Ahnert, Martin Kuncl We examine loan insurance—credit risk transfer upon origination—in a model in which lenders can screen, learn loan quality over time, and can sell loans. Some lenders with low screening ability insure, benefiting from higher market liquidity of insured loans while forgoing the option to exploit future information about loan quality. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets, Financial system regulation and policies JEL Code(s): G, G0, G01, G2, G21, G28
Assessment of Liquidity Creation in the Canadian Banking System Staff Analytical Note 2019-30 Annika Gnann, Sahika Kaya Liquidity creation is a fundamental function of banks. It provides the public with easy access to funds. These funds are important because they allow households and businesses to consume and invest. In this note, we measure liquidity creation by Canadian financial institutions from the first quarter of 2012 to the second quarter of 2019, using a methodology suggested by Berger and Bouwman (2009) and known as the BB measure. Content Type(s): Staff research, Staff analytical notes Topic(s): Financial institutions, Financial stability, Monetary and financial indicators JEL Code(s): G, G2, G21, G28, G3, G32
Interconnected Banks and Systemically Important Exposures Staff Working Paper 2019-44 Alan Roncoroni, Stefano Battiston, Marco D’Errico, Grzegorz Halaj, Christoffer Kok 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. Content Type(s): Staff research, Staff working papers Topic(s): Financial stability JEL Code(s): C, C6, C63, G, G1, G15, G2, G21
Borrowing Costs for Government of Canada Treasury Bills Staff Analytical Note 2019-28 Jabir Sandhu, Adrian Walton, Jessica Lee The cost of borrowing Government of Canada treasury bills (t-bills) in the repurchase (repo) market is mainly explained by the relationship between the parties involved. Some pairs of parties conduct most of their repos for t-bills rather than bonds, and at relatively high borrowing costs. We speculate that these pairs have formed a mutually beneficial service relationship in which one party consistently receives t-bills, while the other receives cash at a relatively cheap rate. Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets JEL Code(s): G, G1, G10, G11, G12, G2, G20, G21, G23, G3, G32