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Production efficiency and financial stability do not necessarily go hand in hand. With heterogeneity in banks’ abilities to screen borrowers, the market for loans becomes segmented and a self-competition mechanism arises. When heterogeneity increases, the intensive and extensive margins have opposite effects.

How much discretion should local financial regulators in a banking union have in accommodating local credit demand? I analyze this question in an economy where local regulators privately observe expected output from high lending. They do not fully internalize default costs from high lending since deposit insurance cannot be priced fairly.

The primary focus of this paper is to study conflict of interest in the brokerage market. Brokers face a conflict of interest when the commissions they receive from investors differ from the costs imposed by different trading venues.

Emergency Lending Assistance (ELA) is a discretionary last-resort collateralized loan or ad-vance by the Bank of Canada to eligible financial institutions (FIs) and financial market infrastructures (FMIs) facing serious liquidity problems. In December 2015, the Bank revised its ELA policy to (i) replace the requirement for an FI’s solvency with the requirement for a credible recovery and resolution framework; (ii) include mortgages as eligible collateral; and (iii) clarify both the eligibility requirements for FMIs and provincially regulated deposit-taking FIs.

Central banks contribute importantly to the promotion of financial stability given their sys-tem-wide macro-financial perspective and existing roles as lender of last resort and overseer of systemic payment systems. Since the global financial crisis, the financial system role of central banks has expanded to place more emphasis on the prevention of financial stress and crises. Central banks work with other responsible authorities to enhance financial system resilience and to assess and mitigate financial vulnerabilities and systemic risk.

Markets for securitized assets were characterized by high liquidity prior to the recent financial crisis and by a sudden market dry-up at the onset of the crisis. A general equilibrium model with heterogeneous investment opportunities and information frictions predicts that, in boom periods or mild recessions, the degree of adverse selection in resale markets for securitized assets is limited because of the reputation-based guarantees by asset originators.

This paper combines loan-level administrative data with household-level survey data to analyze the impact of recent macroprudential policy changes in Canada using a microsimulation model of mortgage demand of first-time homebuyers.

During the period of 2008 to 2012, the rules for government-backed mortgage insurance were tightened on four occasions. In this note, we estimate the effects through a simple econometric exercise using a vector error-correction model (VECM).

Interconnectedness among insurers and reinsurers at a global level is not well understood and may pose a significant risk to the sector, with implications for the macroeconomy. Models of the complex interactions among reinsurers and with other participants in the financial system and the real economy are at a very early stage of development.

The recent financial crisis has led to the development of new regulations to control risk in designated payment systems, and the implementation of new credit risk management standards is one of the key issues. In this paper, we study various credit risk management schemes for the Canadian retail payment system (ACSS) that are designed to cover the exposure of a defaulting member.