Cyber Risk and Security Investment Staff Working Paper 2022-32 Toni Ahnert, Michael Brolley, David Cimon, Ryan Riordan We develop a principal-agent model of cyber-attacking with fee-paying clients who delegate security decisions to financial platforms. We derive testable implications about clients’ vulnerability to cyber attacks and about the fees charged. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Financial services, Financial stability, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): D, D7, D78, D8, D81, G, G1, G18, G2, G21, G23
Quantum Monte Carlo for Economics: Stress Testing and Macroeconomic Deep Learning Staff Working Paper 2022-29 Vladimir Skavysh, Sofia Priazhkina, Diego Guala, Thomas Bromley Using the quantum Monte Carlo algorithm, we study whether quantum computing can improve the run time of economic applications and challenges in doing so. We apply the algorithm to two models: a stress testing bank model and a DSGE model solved with deep learning. We also present innovations in the algorithm and benchmark it to classical Monte Carlo. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Central bank research, Econometric and statistical methods, Economic models, Financial stability JEL Code(s): C, C1, C15, C6, C61, C63, C68, C7, E, E1, E13, G, G1, G17, G2, G21
Unregulated Lending, Mortgage Regulations and Monetary Policy Staff Working Paper 2022-28 Ugochi Emenogu, Brian Peterson This paper evaluates the effectiveness of macroprudential policies when regulations are uneven across mortgage lender types. We look at credit tightening that results from macroprudential regulations and examine how much of it is counteracted by credit shifting to unregulated lenders. We also study the impact of monetary policy tightening when some lenders are unregulated. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial system regulation and policies, Monetary policy transmission JEL Code(s): E, E4, E44, E5, E50, E52, E58, G, G2, G21, G23, G28
Potential netting benefits from expanded central clearing in Canada’s fixed-income market Staff Analytical Note 2022-8 Jessie Ziqing Chen, Johannes Chen, Shamarthi Ghosh, Manu Pandey, Adrian Walton We assess whether more central clearing would enhance the resilience of Canadian fixed-income markets. Our analysis estimates the potential benefits of balance sheet netting under scenarios where central clearing is expanded to new participants. Content Type(s): Staff research, Staff analytical notes Topic(s): Credit risk management, Financial institutions, Financial markets JEL Code(s): D, D4, G, G1, G12, G2, G21, G29
How well can large banks in Canada withstand a severe economic downturn? Staff Analytical Note 2022-6 Andisheh (Andy) Danaee, Harsimran Grewal, Brad Howell, Guillaume Ouellet Leblanc, Xuezhi Liu, Mayur Patel, Xiangjin Shen We examine the potential impacts of a severe economic shock on the resilience of major banks in Canada. We find these banks would suffer significant financial losses but nevertheless remain resilient. This underscores the role well-capitalized banks and sound underwriting practices play in supporting economic activity in a downturn. Content Type(s): Staff research, Staff analytical notes Topic(s): Financial institutions, Financial stability JEL Code(s): E, E2, E27, E3, E37, E4, E44, G, G1, G2, G21, G23
Financial Intermediaries and the Macroeconomy: Evidence from a High-Frequency Identification Staff Working Paper 2022-24 Pablo Ottonello, Wenting Song We provide empirical evidence of effects to the aggregate economy from surprises about financial intermediaries’ net worth based on a high-frequency identification strategy. We estimate that news of a 1% decline in intermediaries’ net worth leads to a 0.2%–0.4% decrease in the market value of nonfinancial firms. Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Business fluctuations and cycles, Credit and credit aggregates, Financial institutions, Financial markets, Financial system regulation and policies, Monetary and financial indicators JEL Code(s): E, E3, E32, E4, E44, E5, E51, G, G0, G01, G1, G12, G2, G21, G23, G24, G3, G32
Transmission of Cyber Risk Through the Canadian Wholesale Payment System Staff Working Paper 2022-23 Anneke Kosse, Zhentong Lu This paper studies how the impact of a cyber attack that paralyzes one or multiple banks' ability to send payments would transmit to other banks through the Canadian wholesale payment system. Based on historical payment data, we simulate a wide range of scenarios and evaluate the total payment disruption in the system. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial stability, Payment clearing and settlement systems JEL Code(s): C, C4, C49, E, E4, E42, E47, G, G2, G21
Resilience of bank liquidity ratios in the presence of a central bank digital currency Staff Analytical Note 2022-5 Alissa Gorelova, Bena Lands, Maria teNyenhuis Could Canadian banks continue to meet their regulatory liquidity requirements after the introduction of a cash-like retail central bank digital currency (CBDC)? We conduct a hypothetical exercise to estimate how a CBDC could affect bank liquidity by increasing the run-off rates of transactional retail deposits under four increasingly severe scenarios. Content Type(s): Staff research, Staff analytical notes Topic(s): Central bank research, Digital currencies and fintech, Econometric and statistical methods, Financial institutions, Financial stability JEL Code(s): C, E, E4, G, G2, G21, O, O3, O33
Identifying Financially Remote First Nations Reserves Staff Discussion Paper 2022-11 Heng Chen, Walter Engert, Kim Huynh, Daneal O’Habib Chen et al. (2021) show that almost one-third of First Nations band offices in Canada are within 1 kilometre (km) of an automated banking machine (ABM) or financial institution (FI) branch and more than half are within 5 km. Content Type(s): Staff research, Staff discussion papers Topic(s): Bank notes, Digital currencies and fintech, Financial institutions, Financial services, Payment clearing and settlement systems JEL Code(s): E, E4, E41, E42, E5, G, G2, G21
News-Driven International Credit Cycles Staff Working Paper 2021-66 Galip Kemal Ozhan This paper examines the implications of positive news about future asset values that turn out to be incorrect at a later date in an open economy model with banking. The model captures the patterns of bank credit and current account dynamics in Spain between 2000 and 2010. The model finds that the use of unconventional policies leads to a milder bust. Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Economic models, Financial stability, Recent economic and financial developments, Sectoral balance sheet JEL Code(s): E, E4, E44, F, F3, F32, F4, F41, G, G1, G15, G2, G21