Liquidity risks at Canadian life insurance companies Staff Analytical Note 2024-7 Patrick Aldridge, Stephane Gignac, Rishi Vala, Adrian Walton We examine how life insurers manage liquidity risks created by their business model. We find that Canadian life insurers did not face significant liquidity draws and continued their usual investment behaviour during the COVID-19 crisis and as interest rates increased in 2022. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Coronavirus disease (COVID-19), Financial institutions, Financial markets, Financial stability, Market structure and pricing JEL Code(s): D, D4, D47, D5, D53, G, G1, G12, G14, G2, G23
Unintended Consequences of the Home Affordable Refinance Program Staff Working Paper 2024-11 Phoebe Tian, Chen Zheng We investigate the unintended consequences of the Home Affordable Refinance Program (HARP). Originally designed to help borrowers refinance after the 2008–09 global financial crisis, HARP inadvertently strengthened the market power of incumbent lenders by creating a cost advantage for them. Despite a 2013 policy rectifying this cost advantage, we still find significant welfare losses for borrowers. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions JEL Code(s): G, G2, G21, G5, G51, L, L5, L51
Measuring household financial stress in Canada using consumer surveys Staff Analytical Note 2024-5 Nicolas Bédard, Patrick Sabourin We use data from the Canadian Survey of Consumer Expectations to understand how households are coping with high inflation and high interest rates. We build a subjective measure of financial stress and find that the level of stress is at a historical high but remains manageable for most households. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Domestic demand and components, Financial stability, Monetary policy transmission, Recent economic and financial developments JEL Code(s): D, D1, D14, G, G5, H, H3
CBDC: Banking and Anonymity Staff Working Paper 2024-9 Yuteng Cheng, Ryuichiro Izumi We examine the optimal amount of user anonymity in a central bank digital currency in the context of bank lending. Anonymity, defined as the lender’s inability to discern an entrepreneur’s actions that enable fund diversion, influences the choice of payment instrument due to its impact on a bank’s lending decisions. Content Type(s): Staff research, Staff working papers Research Topic(s): Digital currencies and fintech JEL Code(s): E, E4, E42, E5, E58, G, G2, G28
Monetary Policy Transmission Through Shadow and Traditional Banks Staff Working Paper 2024-8 Amina Enkhbold I investigate how monetary policy transmits to mortgage rates via the mortgage market concentration channel for both traditional and shadow banks in the United States from 2009 to 2019. On average, shadow and traditional banks exhibit only a slight disparity in transmitting monetary shocks to mortgage rates. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Interest rates, Monetary policy transmission JEL Code(s): E, E4, E44, E5, E52, G, G2, G21
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 Research 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 Research 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 Research 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 Research 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 Research 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