Losses from Simulated Defaults in Canada's Large Value Transfer System Staff Discussion Paper 2010-14 Nellie Zhang, Tom Hossfeld The Large Value Transfer System (LVTS) loss-sharing mechanism was designed to ensure that, in the event of a one-participant default, the collateral pledged by direct members of the system would be sufficient to cover the largest possible net debit position of a defaulting participant. However, the situation may not hold if the indirect effects of the defaults are taken into consideration, or if two participants default during the same payment cycle. Content Type(s): Staff research, Staff discussion papers Topic(s): Financial institutions, Financial stability, Payment clearing and settlement systems JEL Code(s): E, E4, E47, G, G2, G21
Liquidity Transformation and Bank Capital Requirements Staff Working Paper 2010-22 Hajime Tomura This paper presents a dynamic general equilibrium model where asymmetric information about asset quality leads to asset illiquidity. Banking arises endogenously in this environment as banks can pool illiquid assets to average out their idiosyncratic qualities and issue liquid liabilities backed by pooled assets whose total quality is public information. Content Type(s): Staff research, Staff working papers Topic(s): Financial stability, Financial system regulation and policies JEL Code(s): D, D8, D82, E, E4, E44, G, G2, G21
Macroprudential Regulation and Systemic Capital Requirements Staff Working Paper 2010-4 Céline Gauthier, Alfred Lehar, Moez Souissi In the aftermath of the financial crisis, there is interest in reforming bank regulation such that capital requirements are more closely linked to a bank's contribution to the overall risk of the financial system. In our paper we compare alternative mechanisms for allocating the overall risk of a banking system to its member banks. Content Type(s): Staff research, Staff working papers Topic(s): Financial stability JEL Code(s): C, C1, C15, C8, C81, E, E4, E44, G, G2, G21
Regulatory Constraints on Bank Leverage: Issues and Lessons from the Canadian Experience Staff Discussion Paper 2009-15 Étienne Bordeleau, Allan Crawford, Christopher Graham The Basel capital framework plays an important role in risk management by linking a bank's minimum capital requirements to the riskiness of its assets. Nevertheless, the risk estimates underlying these calculations may be imperfect, and it appears that a cyclical bias in measures of risk-adjusted capital contributed to procyclical increases in global leverage prior to the recent financial crisis. Content Type(s): Staff research, Staff discussion papers Topic(s): Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): G, G0, G01, G2, G21, G28
The Role of Foreign Exchange Dealers in Providing Overnight Liquidity Staff Working Paper 2008-44 Chris D'Souza This paper illustrates that dealers in foreign exchange markets not only provide intraday liquidity, they are key participants in the provision of overnight liquidity. Dealing institutions receive compensation for holding undesired inventory balances in part from the information they receive in customer trades. Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Financial markets, Market structure and pricing JEL Code(s): D, D8, D82, F, F3, F31, G, G2, G21
Are There Canada-U.S. Differences in SME Financing? Staff Working Paper 2008-41 Danny Leung, Césaire Meh, Yaz Terajima Previous surveys of Canadian and U.S. business owners suggest that access to financing in Canada may be more problematic than in the United States. Using the 2003 Survey of Small Business Financing in the United States and the 2004 Survey on Financing of Small and Medium Enterprises in Canada, this paper examines whether this perception can be better quantified. Content Type(s): Staff research, Staff working papers Topic(s): Financial services JEL Code(s): C, C2, C21, G, G2, G21
The Role of Bank Capital in the Propagation of Shocks Staff Working Paper 2008-36 Césaire Meh, Kevin Moran Recent events in financial markets have underlined the importance of analyzing the link between the financial health of banks and real economic activity. This paper contributes to this analysis by constructing a dynamic general equilibrium model in which the balance sheet of banks affects the propagation of shocks. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Financial institutions, Financial system regulation and policies, Monetary policy transmission JEL Code(s): E, E4, E44, E5, E52, G, G2, G21
What To Do about Bilateral Credit Limits in the LVTS When a Closure Is Anticipated: Risk versus Liquidity Sharing among LVTS Participants Staff Discussion Paper 2008-13 Sean O'Connor, Greg Caldwell The authors examine the effect of a trade-off between shared credit risk and liquidity efficiency, among participants in Tranche 2 of the Large Value Transfer System (LVTS T2), on their decisions to leave open, or close, their bilateral credit limits (BCLs) to a participant at risk of imminent closure. Content Type(s): Staff research, Staff discussion papers Topic(s): Financial institutions, Financial services, Payment clearing and settlement systems JEL Code(s): G, G2, G21, L, L1, L13, L14
Market Structure and the Diffusion of E-Commerce: Evidence from the Retail Banking Industry Staff Working Paper 2008-32 Jason Allen, Robert Clark, Jean-François Houde This paper studies the role that market structure plays in affecting the diffusion of electronic banking. Electronic banking (and electronic commerce more generally) reduces the cost of performing many types of transactions for firms. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Market structure and pricing JEL Code(s): D, D1, D14, D4, G, G2, G21, L, L1
Non-Linearities, Model Uncertainty, and Macro Stress Testing Staff Working Paper 2008-30 Miroslav Misina, David Tessier A distinguishing feature of macro stress testing exercises is the use of macroeconomic models in scenario design and implementation. It is widely agreed that scenarios should be based on "rare but plausible" events that have either resulted in vulnerabilities in the past or could do so in the future. Content Type(s): Staff research, Staff working papers Topic(s): Financial stability JEL Code(s): C, C1, C15, G, G2, G21, G3, G33