COVID-19 Crisis: Lessons Learned for Future Policy Research Staff Discussion Paper 2021-2 Jean-Sébastien Fontaine, Corey Garriott, Jesse Johal, Jessica Lee, Andreas Uthemann One year later, we review the events that took place in Canadian fixed-income markets at the beginning of the COVID-19 crisis and propose potential policy research questions for future work. Content Type(s): Staff research, Staff discussion papers Topic(s): Coronavirus disease (COVID-19), Financial markets, Monetary policy JEL Code(s): D, D4, D47, E, E4, E41, E5, G, G0, G01, G1, G14, G2, G20, G21, G23
Market Concentration and Uniform Pricing: Evidence from Bank Mergers Staff Working Paper 2021-9 João Granja, Nuno Paixao We show that US banks price deposits almost uniformly across their branches and that this pricing practice is more important than increases in local market concentration in explaining the deposit rate dynamics following bank mergers. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial system regulation and policies, Market structure and pricing JEL Code(s): D, D4, G, G2, G20, G21, G28, G3, G34, L, L1, L11
Distributional Effects of Payment Card Pricing and Merchant Cost Pass-through in Canada and the United States Staff Working Paper 2021-8 Marie-Hélène Felt, Fumiko Hayashi, Joanna Stavins, Angelika Welte Although credit cards are more expensive for merchants to accept than cash or debit cards, merchants typically pass through their costs evenly to all customers. Along with consumer card rewards and banking fees, this creates cross-subsidies between payment methods. Because higher-income individuals tend to use credit cards more than those with lower incomes, our results indicate that these cross-subsidies might lead to regressive distributional effects. Content Type(s): Staff research, Staff working papers Topic(s): Bank notes, Financial institutions, Financial services, Market structure and pricing, Payment clearing and settlement systems JEL Code(s): D, D1, D12, D2, D23, D3, D31, E, E4, E42, G, G2, G21, L, L8, L81
Consumer Credit with Over-optimistic Borrowers Staff Working Paper 2020-57 Florian Exler, Igor Livshits, James (Jim) C. MacGee, Michèle Tertilt When lenders cannot directly identify behavioural and rational borrowers, they use type scoring to track the likelihood of a borrower’s type. This leads to the partial pooling of borrowers, which results in rational borrowers subsidizing borrowing costs for behavioural borrowers. This, in turn, reduces the effectiveness of regulatory policies that target mistakes by behavioural borrowers. Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Credit risk management, Financial system regulation and policies JEL Code(s): E, E2, E21, E4, E49, G, G1, G18, K, K3, K35
Strategic Uncertainty in Financial Markets: Evidence from a Consensus Pricing Service Staff Working Paper 2020-55 Lerby Ergun, Andreas Uthemann We look at the informational content of consensus pricing in opaque over-the-counter markets. We show that the availability of price data informs participants mainly about other participants’ valuations, rather than about the value of a financial security. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets, Market structure and pricing JEL Code(s): C, C5, C58, D, D5, D53, D8, D83, G, G1, G12, G14
Safe Payments Staff Working Paper 2020-53 Jonathan Chiu, Mohammad Davoodalhosseini, Janet Hua Jiang, Yu Zhu In a cashless economy, would the private sector invest in the optimal level of safety in a deposit-based payment system? In general, because of externalities, the answer is no. While the private sector could over- or under-invest in safety, the government can use taxes or subsidies to correct private incentives. Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Digital currencies and fintech, Financial institutions, Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E50, G, G2, G21
The Heterogeneous Effects of COVID-19 on Canadian Household Consumption, Debt and Savings Staff Working Paper 2020-51 James (Jim) C. MacGee, Thomas Michael Pugh, Kurt See The impact of COVID-19 on Canadian households’ debt and unplanned savings varies by household income. Low-income and high-income households accrued unplanned savings, while middle-income households tended to accumulate more debt. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Coronavirus disease (COVID-19), Financial stability JEL Code(s): E, E2, E21, E24, G, G5, G51
Concentration in the market of authorized participants of US fixed-income exchange-traded funds Staff Analytical Note 2020-27 Rohan Arora, Sébastien Betermier, Guillaume Ouellet Leblanc, Adriano Palumbo, Ryan Shotlander We show that a small number of authorized participants (APs) actively create and redeem shares of US-listed fixed-income exchange-traded funds (FI-ETFs). In 2019, three APs performed 82 percent of gross creations and redemptions of FI-ETF shares. In contrast, the group of active APs for equity ETFs was much more diverse. Content Type(s): Staff research, Staff analytical notes Topic(s): Coronavirus disease (COVID-19), Financial markets, Financial stability JEL Code(s): G, G1, G2, G20, G23
Corporate investment and monetary policy transmission in Canada Staff Analytical Note 2020-26 Min Jae Kim, Jonathan Witmer Unexpected changes in interest rates lead small firms to materially change their investment rate. Large firms, in contrast, show a smaller response. This suggests both that financial conditions are an important channel for transmitting monetary policy and that firm characteristics can help us better understand fluctuations in business investment. Content Type(s): Staff research, Staff analytical notes Topic(s): Firm dynamics, Monetary policy, Monetary policy transmission JEL Code(s): D, D2, D22, D9, D92, G, G3, G31, G32
Outside Investor Access to Top Management: Market Monitoring versus Stock Price Manipulation Staff Working Paper 2020-43 Josef Schroth Should managers be paid in stock options if they provide stock-market participants with information about the firm? This paper studies how firm owners trade off the benefit of stock-price incentives and better-informed market participants against the cost of potential stock-price manipulation. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Financial markets, Recent economic and financial developments JEL Code(s): D, D8, D82, D86, G, G1, G14, G3, G32, G34, M, M1, M12, M4, M41