Optimal Margining and Margin Relief in Centrally Cleared Derivatives Markets Staff Working Paper 2014-29 Radoslav Raykov A major policy challenge posed by derivatives clearinghouses is that their collateral requirements can rise sharply in times of stress, reducing market liquidity and further exacerbating downturns. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Payment clearing and settlement systems JEL Code(s): G, G1, G19, G2, G21
Filling in the Blanks: Network Structure and Interbank Contagion Staff Working Paper 2014-26 Kartik Anand, Ben Craig, Goetz von Peter The network pattern of financial linkages is important in many areas of banking and finance. Yet bilateral linkages are often unobserved, and maximum entropy serves as the leading method for estimating counterparty exposures. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Financial institutions, Financial stability JEL Code(s): C, C6, C63, D, D8, D85, G, G2, G21, L, L1, L14
June 12, 2014 Stress Testing the Canadian Banking System: A System-Wide Approach Financial System Review - June 2014 Kartik Anand, Guillaume Bédard-Pagé, Virginie Traclet 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. Content Type(s): Publications, Financial System Review articles Topic(s): Financial institutions, Financial stability JEL Code(s): C, C6, C63, G, G0, G01, G2, G21
Rollover Risk and the Maturity Transformation Function of Banks Staff Working Paper 2014-8 Teodora Paligorova, João Santos 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. Content Type(s): Staff research, Staff working papers Topic(s): Financial stability JEL Code(s): G, G2, G21
Banks’ Financial Distress, Lending Supply and Consumption Expenditure Staff Working Paper 2014-7 H. Evren Damar, Reint Gropp, Adi Mordel 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. Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Domestic demand and components, Financial institutions JEL Code(s): E, E2, E21, E4, E44, G, G0, G01, G2, G21
Household Risk Management and Actual Mortgage Choice in the Euro Area Staff Working Paper 2014-1 Michael Ehrmann, Michael Ziegelmeyer 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. Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Monetary policy transmission JEL Code(s): D, D1, D12, E, E4, E43, E5, E52, G, G2, G21
Funding Advantage and Market Discipline in the Canadian Banking Sector Staff Working Paper 2013-50 Mehdi Beyhaghi, Chris D'Souza, Gordon S. Roberts 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. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Interest rates JEL Code(s): G, G0, G01, G2, G21, G28, G3, G32, G33
Lessons from the Financial Crisis: Bank Performance and Regulatory Reform Staff Discussion Paper 2013-4 Neville Arjani, Graydon Paulin The financial systems of some countries fared materially better than others during the global financial crisis of 2007-09. Content Type(s): Staff research, Staff discussion papers Topic(s): Financial institutions, Financial system regulation and policies JEL Code(s): G, G2, G21, G28
Business Cycle Effects of Credit Shocks in a DSGE Model with Firm Defaults Staff Working Paper 2013-19 M. Hashem Pesaran, TengTeng Xu 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. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Economic models, Financial institutions JEL Code(s): E, E3, E32, E4, E44, G, G2, G21
Méthodologie de construction de séries de taux de défaut pour l’industrie canadienne Staff Discussion Paper 2013-2 Ramdane Djoudad, Étienne Bordeleau 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. Content Type(s): Staff research, Staff discussion papers Topic(s): Econometric and statistical methods, Financial institutions, Financial stability JEL Code(s): C, C1, C13, C18, G, G2, G21, G3, G33