What has been putting upward pressure on CORRA? Staff Analytical Note 2024-4 Boran Plong, Neil Maru From the autumn of 2023 into early 2024, the Canadian Overnight Repo Rate Average (CORRA), a measure of the cost of overnight general collateral Canadian dollar repos, was consistently well above the Bank’s target for the overnight rate. We find that, among several factors, long bond positions that require repo financing are the main driver of the recent upward pressure on CORRA. Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets, Interest rates, Lender of last resort, Monetary policy implementation JEL Code(s): D, D4, D5, D53, E, E4, E43, E44, E5, E52, G, G1, G12
Decomposing Large Banks’ Systemic Trading Losses Staff Working Paper 2024-6 Radoslav Raykov Do banks realize simultaneous trading losses because they invest in the same assets, or because different assets are subject to the same macro shocks? This paper decomposes the comovements of bank trading losses into two orthogonal channels: portfolio overlap and common shocks. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial stability JEL Code(s): G, G1, G10, G11, G2, G20
The Role of Long-Term Contracting in Business Lending Staff Working Paper 2024-2 Phoebe Tian This paper examines inefficiencies arising from a lack of long-term contracting in small business lending in China. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions JEL Code(s): D, D8, D83, D86, G, G2, G21, L, L1, L14, L2, L26
Market structure of cryptoasset exchanges: Introduction, challenges and emerging trends Staff Analytical Note 2024-2 Vladimir Skavysh, Jacob Sharples, Sofia Priazhkina, Salman H. Hasham This paper provides an overview of cryptoasset exchanges. We contrast their design with exchanges in traditional financial markets and discuss emerging regulatory trends and innovations aimed at solving the problems cryptoasset exchanges face. Content Type(s): Staff research, Staff analytical notes Topic(s): Digital currencies and fintech, Payment clearing and settlement systems JEL Code(s): G, G1, G15, L, L1
January 15, 2024 Mapping out the implications of climate transition risk for the financial system Gabriel Bruneau, Javier Ojea Ferreiro, Andrew Plummer, Marie-Christine Tremblay, Aidan Witts We develop a new analytical framework to understand the system-wide implications of climate transition risk. When applying this framework to Canadian data, we find that interconnections within the financial sector could amplify the direct effects of climate transition risk on financial entities. Content Type(s): Publications, Financial System Hub articles Topic(s): Climate change, Economic models, Financial institutions, Financial markets, Financial stability JEL Code(s): C, C6, C63, G, G0, G01, G1, G10, G2, G20, Q, Q5, Q54
January 15, 2024 Flood risk and residential lending Craig Johnston, Geneviève Vallée, Hossein Hosseini Jebeli, Miguel Molico, Marie-Christine Tremblay, Aidan Witts We present key findings of a recent study that evaluates the credit risk that flooding poses to the residential lending activities of Canadian banks and credit unions. Results show that such risk currently appears modest but could become larger with climate change. Content Type(s): Publications, Financial System Hub articles Topic(s): Central bank research, Climate change, Credit risk management, Econometric and statistical methods, Financial institutions, Financial stability JEL Code(s): C, C8, C81, G, G2, G21, Q, Q5, Q54
Extreme Weather and Low-Income Household Finance: Evidence from Payday Loans Staff Working Paper 2024-1 Shihan Xie, Victoria Wenxin Xie, Xu Zhang This paper explores the impact of extreme weather exposures on the financial outcomes of low-income households. Our findings highlight the heightened financial vulnerability of low-income households to environmental shocks and underscore the need for targeted policies. Content Type(s): Staff research, Staff working papers Topic(s): Climate change, Credit and credit aggregates JEL Code(s): G, G5, Q, Q5, Q54
Modelling Canadian mortgage debt and payments in a semi-structural model Staff Analytical Note 2024-1 Fares Bounajm, Austin McWhirter We show how Canadian mortgage debt dynamics can be modelled in a semi-structural macroeconomic model, such as the Bank of Canada’s LENS. The model we propose accounts for Canada’s unique mortgage debt structure. Content Type(s): Staff research, Staff analytical notes Topic(s): Economic models, Monetary policy transmission JEL Code(s): E, E2, E27, E4, E43, E47, G, G5, G51
Procyclicality in Central Counterparty Margin Models: A Conceptual Tool Kit and the Key Parameters Staff Discussion Paper 2023-34 Alper Odabasioglu Regulators need to provide effective procyclicality guidance, and central counterparties must design and calibrate their margin systems and procyclicality frameworks appropriately. To serve these needs, we provide a novel conceptual tool kit. Further, we highlight that the focus should be on the key margin system parameters in determining procyclicality. Content Type(s): Staff research, Staff discussion papers Topic(s): Coronavirus disease (COVID-19), Credit risk management, Financial institutions, Financial markets, Financial stability, Financial system regulation and policies JEL Code(s): G, G0, G01, G2, G23, G28
Perceived versus Calibrated Income Risks in Heterogeneous-Agent Consumption Models Staff Working Paper 2023-59 Tao Wang Perceived income risks reported in a survey of consumer expectations are more heterogeneous and, on average, lower than indirectly calibrated risks based on panel data. They prove to be one explanation for why a large fraction of households hold very little liquid savings and why accumulated wealth is widely unequal across households. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Monetary policy, Monetary policy and uncertainty JEL Code(s): D, D1, D14, E, E2, E21, E7, E71, G, G5, G51