Rollover Risk and the Maturity Transformation Function of Banks Staff Working Paper 2014-8 Teodora Paligorova, João Santos This paper shows that banks that rely heavily on short-term funding engage less in maturity transformation in an attempt to decrease their exposure to rollover risk. These banks shorten both the maturity of their portfolio of loans as well as the maturity of newly issued loans. We find that the loan yield curve becomes steeper with banks’ increasing use of short-term funding. Content Type(s): Staff research, Staff working papers Topic(s): Financial stability JEL Code(s): G, G2, G21
Banks’ Financial Distress, Lending Supply and Consumption Expenditure Staff Working Paper 2014-7 H. Evren Damar, Reint Gropp, Adi Mordel The paper employs a unique identification strategy that links survey data on household consumption expenditure to bank-level data in order to estimate the effects of bank financial distress on consumer credit and consumption expenditures. Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Domestic demand and components, Financial institutions JEL Code(s): E, E2, E21, E4, E44, G, G0, G01, G2, G21
Search-for-Yield in Canadian Fixed-Income Mutual Funds and Monetary Policy Staff Working Paper 2014-3 Sermin Gungor, Jesus Sierra This paper investigates the effects of monetary policy on the risk-taking behavior of fixed-income mutual funds in Canada. We consider different measures of the stance of monetary policy and investigate active variation in mutual funds’ risk exposure in response to monetary policy. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Monetary policy transmission JEL Code(s): E, E5, E52, G, G2, G23
Household Risk Management and Actual Mortgage Choice in the Euro Area Staff Working Paper 2014-1 Michael Ehrmann, Michael Ziegelmeyer Mortgages constitute the largest part of household debt. An essential choice when taking out a mortgage is between fixed-interest-rate mortgages (FRMs) and adjustable-interest-rate mortgages (ARMs). However, so far, no comprehensive cross‐country study has analyzed what determines household demand for mortgage types, a task that this paper takes up using new data for the euro area. Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Monetary policy transmission JEL Code(s): D, D1, D12, E, E4, E43, E5, E52, G, G2, G21
Funding Advantage and Market Discipline in the Canadian Banking Sector Staff Working Paper 2013-50 Mehdi Beyhaghi, Chris D'Souza, Gordon S. Roberts We employ a comprehensive data set and a variety of methods to provide evidence on the magnitude of large banks’ funding advantage in Canada, and on the extent to which market discipline exists across different securities issued by the Canadian banks. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Interest rates JEL Code(s): G, G0, G01, G2, G21, G28, G3, G32, G33
Lessons from the Financial Crisis: Bank Performance and Regulatory Reform Staff Discussion Paper 2013-4 Neville Arjani, Graydon Paulin The financial systems of some countries fared materially better than others during the global financial crisis of 2007-09. Content Type(s): Staff research, Staff discussion papers Topic(s): Financial institutions, Financial system regulation and policies JEL Code(s): G, G2, G21, G28
November 14, 2013 Fragmentation in Canadian Equity Markets Bank of Canada Review - Autumn 2013 Corey Garriott, Anna Pomeranets, Joshua Slive, Thomas Thorn Changes in technology and regulation have resulted in an increasing number of trading venues in equity markets in Canada. New trading platforms have intensified price competition and have encouraged innovation, and they do not appear to have segmented trade. But the increasingly complex market structure has necessitated investments in expensive technology and has introduced new operational risks. Regulatory responses should be carefully adapted to retain the competition and innovation associated with this market fragmentation. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial institutions, Financial markets, Market structure and pricing JEL Code(s): G, G2, L, L1, L13, N, N2, N22
The ‘Celtic Crisis’: Guarantees, Transparency and Systemic Liquidity Risk Staff Working Paper 2013-31 Philipp König, Kartik Anand, Frank Heinemann Bank liability guarantee schemes have traditionally been viewed as costless measures to shore up investor confidence and prevent bank runs. However, as the experiences of some European countries, most notably Ireland, have demonstrated, the credibility and effectiveness of these guarantees are crucially intertwined with the sovereign’s funding risks. Content Type(s): Staff research, Staff working papers Topic(s): Financial stability, Financial system regulation and policies JEL Code(s): D, D8, D89, G, G0, G01, G2, G28
Volatility and Liquidity Costs Staff Working Paper 2013-29 Selma Chaker Observed high-frequency prices are contaminated with liquidity costs or market microstructure noise. Using such data, we derive a new asset return variance estimator inspired by the market microstructure literature to explicitly model the noise and remove it from observed returns before estimating their variance. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Financial markets, Market structure and pricing JEL Code(s): C, C1, C14, C5, C51, C58, G, G2, G20
Business Cycle Effects of Credit Shocks in a DSGE Model with Firm Defaults Staff Working Paper 2013-19 M. Hashem Pesaran, TengTeng Xu This paper proposes a theoretical framework to analyze the relationship between credit shocks, firm defaults and volatility, and to study the impact of credit shocks on business cycle dynamics. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Economic models, Financial institutions JEL Code(s): E, E3, E32, E4, E44, G, G2, G21