Who Pays? CCP Resource Provision in the Post-Pittsburgh World Staff Discussion Paper 2017-17 Jorge Cruz Lopez, Mark Manning At the Pittsburgh Summit in 2009, G20 countries announced their commitment to clear all standardized over-the-counter (OTC) derivatives through central counterparties (CCPs). Since then, CCPs have become increasingly important and there has been an extensive program of regulatory enhancements to both them and OTC derivatives markets. Content Type(s): Staff research, Staff discussion papers Topic(s): Financial markets, Financial stability, Financial system regulation and policies JEL Code(s): G, G0, G01, G2, G28
Credit Risk Transfer and Bank Insolvency Risk Staff Working Paper 2017-59 Maarten van Oordt The present paper shows that, everything else equal, some transactions to transfer portfolio credit risk to third-party investors increase the insolvency risk of banks. This is particularly likely if a bank sells the senior tranche and retains a sufficiently large first-loss position. Content Type(s): Staff research, Staff working papers Topic(s): Credit risk management, Financial institutions, Financial stability JEL Code(s): G, G2, G21, G28, G3, G32
Credit Crunches from Occasionally Binding Bank Borrowing Constraints Staff Working Paper 2017-57 Tom D. Holden, Paul Levine, Jonathan Swarbrick We present a model in which banks and other financial intermediaries face both occasionally binding borrowing constraints and costs of equity issuance. Near the steady state, these intermediaries can raise equity finance at no cost through retained earnings. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Economic models, Financial markets JEL Code(s): E, E2, E22, E3, E32, E5, E51, G, G2
Recent Evolution of Canada’s Credit-to-GDP Gap: Measurement and Interpretation Staff Analytical Note 2017-25 Timothy Grieder, Dylan Hogg, Thibaut Duprey Over the past several years, the Bank for International Settlements has noted that Canada’s credit-to-GDP gap has widened and is above thresholds indicating future banking stress. Content Type(s): Staff research, Staff analytical notes Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Financial stability, Monetary and financial indicators, Recent economic and financial developments, Sectoral balance sheet JEL Code(s): D, D1, E, E3, E32, G, G0, G01, G1, G2, G21, G3, G30
A Barometer of Canadian Financial System Vulnerabilities Staff Analytical Note 2017-24 Thibaut Duprey, Tom Roberts This note presents a composite indicator of Canadian financial system vulnerabilities—the Vulnerabilities Barometer. It aims to complement the Bank of Canada’s vulnerabilities assessment by adding a quantitative and synthesized perspective to the more granular (distributional) analysis presented in the Financial System Review. Content Type(s): Staff research, Staff analytical notes Topic(s): Econometric and statistical methods, Financial stability, Monetary and financial indicators JEL Code(s): C, C1, C14, C4, C40, D, D1, D14, E, E3, E32, E6, E66, F, F0, F01, G, G0, G01, G1, G15, G2, G21, H, H6, H63
What Drives Episodes of Settlement Fails in the Government of Canada Bond Market? Staff Working Paper 2017-54 Jean-Sébastien Fontaine, James Pinnington, Adrian Walton We study settlement fails for trades in the Government of Canada bond market. We find that settlement fails do not occur independently. Using a novel and comprehensive dataset, we examine three drivers of fails. 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
Do Liquidity Proxies Measure Liquidity in Canadian Bond Markets? Staff Analytical Note 2017-23 Jean-Sébastien Fontaine, Jeffrey Gao, Jabir Sandhu, Kobe Wu This analytical note evaluates the reliability of proxies for measuring liquidity in Canadian bond markets. We find that price-impact and bid-ask proxies paint a similar picture of evolving liquidity conditions to that obtained from richer measures of liquidity for benchmark Government of Canada bonds. Content Type(s): Staff research, Staff analytical notes Topic(s): Debt management, Financial markets JEL Code(s): G, G1, G12, G14, G2, G23, G3, G32
November 28, 2017 Shoring Up the Foundations for a More Resilient Banking System: The Development of Basel III Financial System Review - November 2017 Sheryl King, Alexandra Lai, Tamara Gomes The authors trace the development of the Basel III standards for banking regulation. Basel III builds on two earlier frameworks, in response to weaknesses revealed during the global financial crisis. They highlight how implementation of the standards will underpin greater financial stability and provide a sound foundation for economic growth. Content Type(s): Publications, Financial System Review articles Topic(s): Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): G, G1, G2, G21, G28
November 28, 2017 Analysis of Household Vulnerabilities Using Loan-Level Mortgage Data Financial System Review - November 2017 Olga Bilyk, Alexander Ueberfeldt, Yang Xu This report examines detailed data on home mortgages to provide a better understanding of the vulnerabilities associated with the mortgage market. The proportion of low-ratio mortgages is growing, particularly in regions with strong house price growth. Moreover, these borrowers exhibit less flexibility to adverse shocks, since they have high debt levels relative to income and have taken mortgages with long amortization periods. Content Type(s): Publications, Financial System Review articles Topic(s): Credit and credit aggregates, Recent economic and financial developments, Sectoral balance sheet JEL Code(s): D, D1, D12, D14, G, G2, G21, G28
Optimal Interbank Regulation Staff Working Paper 2017-48 Thomas J. Carter Recent years have seen renewed interest in the regulation of interbank markets. A review of the literature in this area identifies two gaps: first, the literature has tended to make ad hoc assumptions about the interbank contract space, which makes it difficult to generate convincing policy prescriptions; second, the literature has tended to focus on ex-post interventions that kick in only after an interbank disruption has come underway (e.g., open-market operations, lender-of-last-resort interventions, bail-outs), rather than ex-ante prudential policies. Content Type(s): Staff research, Staff working papers Topic(s): Financial stability, Financial system regulation and policies JEL Code(s): G, G0, G01, G2, G20