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In this piece we show that a limit on the level of asset encumbrance and minimum capital requirements are effective tools for minimizing the incentive for banks to take excessive risk.

We develop a model to analyze the link between financial leverage, worker pay structure and the risk of job termination. Contrary to the conventional view, we show that even in the absence of any agency problem among workers, variable pay can be optimal despite workers being risk averse and firms risk neutral.

This is the first of the Financial Markets Department’s descriptions of Canadian financial industrial organization. The document discusses the organization of the repurchase-agreement (repo) market in Canada.

To address the challenges posed by global systemically important banks (G-SIBs), the Basel Committee on Banking Supervision recommended an “additional loss absorbency requirement” for these institutions. Along these lines, I develop a microfounded design of capital surcharges that target the interconnectedness component of systemic risk.

Residential mortgage securitization plays an important role in the Canadian system of housing finance, especially given the rising share of government-supported (i.e., public) securitization over the past 15 years. Mordel and Stephens analyze the evolution of two types of mortgage securitization in Canada— private and public — focusing in particular on the underlying public policy and economic benefits of the latter. They review the potential implications of the extent of public securitization and conclude with a discussion of policies that could be considered to reinvigorate private securitization in Canada.

In the months preceding the failure of Lehman Brothers in September 2008, banks were willing to pay a premium over the Federal Reserve’s discount window (DW) rate to participate in the much less flexible Term Auction Facility (TAF). We empirically test the predictions of a new signalling model that offers a rationale for offering two different liquidity facilities.

This article provides an analysis of some recent banking regulatory initiatives that are likely to influence the activities of financial intermediaries and the effectiveness of central bank monetary policy implementation frameworks. Although the effects of individual regulations can be anticipated in most cases, the combined regulatory impact is not yet clear. Central banks should, however, be able to accommodate the effects of the emerging regulatory environment within their existing policy implementation frameworks.

There is widespread agreement that, in the United States, higher house prices raise consumption via collateral or possibly wealth effects. The presence of similar channels in Canada would have important implications for monetary policy transmission.

In this paper, we investigate how liquidity conditions in Canada may affect domestic and/or foreign lending of globally active banks and whether this transmission is influenced by individual bank characteristics.

We analyze how a wealth shift to emerging countries may lead to instability in developed countries. Investors exposed to expropriation risk are willing to pay a safety premium to invest in countries with good property rights.