Forecasting Banks’ Corporate Loan Losses Under Stress: A New Corporate Default Model Technical Report No. 122 Gabriel Bruneau, Thibaut Duprey, Ruben Hipp We present a new corporate default model, one of the building blocks of the Bank of Canada’s bank stress-testing infrastructure. The model is used to forecast corporate loan losses of the Canadian banking sector under stress. Content Type(s): Staff research, Technical reports Research Topic(s): Economic models, Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): C, C2, C22, C5, C52, C53, G, G1, G17, G2, G21, G28
How does the Bank of Canada’s balance sheet impact the banking system? Staff Analytical Note 2022-12 Daniel Bolduc-Zuluaga, Brad Howell, Grahame Johnson We examine how changes in the Bank of Canada’s balance sheet impact the banking system. Quantitative easing contributed to an increase in the size of the banking system’s balance sheet and an improvement in bank liquidity coverage ratios. Quantitative tightening is expected to partially reverse these impacts. The banking system will have to adjust its liquidity management strategy in response. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Financial institutions, Financial stability, Monetary policy JEL Code(s): E, E5, E51, G, G2, G21, G23, G3, G32
COVID-19 and Financial Stability: Practice Ahead of Theory Staff Discussion Paper 2022-18 Jing Yang, Hélène Desgagnés, Grzegorz Halaj, Yaz Terajima The COVID-19 pandemic uncovered policy challenges related to the economic measures that were taken to support the economy. Two years later, we attempt to identify the broader impact of these measures and research that needs to follow. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Coronavirus disease (COVID-19), Financial stability, Financial system regulation and policies JEL Code(s): E, E5, E58, E6, E61, G, G2, G21, H, H3, H8, H84
BoC–BoE Sovereign Default Database: What’s new in 2022? Staff Analytical Note 2022-11 David Beers, Elliot Jones, Karim McDaniels, Zacharie Quiviger The BoC–BoE database of sovereign debt defaults, published and updated annually by the Bank of Canada and the Bank of England, provides comprehensive estimates of stocks of government obligations in default. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Debt management, Development economics, Financial stability, International financial markets JEL Code(s): F, F3, F34, G, G1, G10, G14, G15
Risk and State-Dependent Financial Frictions Staff Working Paper 2022-37 Martin Harding, Rafael Wouters Using a nonlinear New Keynesian model with a financial accelerator, we show that financial frictions generate large state-dependent amplification effects. Shocks propagate more strongly in periods of financial stress. We propose an endogenous regime-switching DSGE framework for efficient estimation and improved model fit. Content Type(s): Staff research, Staff working papers Research Topic(s): Central bank research, Credit and credit aggregates, Financial stability, Monetary policy JEL Code(s): E, E5, E52, E58
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 Research 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 Research 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
Analyzing the house price boom in the suburbs of Canada’s major cities during the pandemic Staff Analytical Note 2022-7 Louis Morel We assess how location affects house prices in Canada. The gap in prices between suburbs and downtown was closing gradually before the pandemic. The gap has been closing faster since spring 2020. This finding reflects a shift in preferences toward more living space. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Asset pricing, Coronavirus disease (COVID-19), Financial stability, Housing JEL Code(s): R, R2, R21, R23, R3, R32
June 9, 2022 Release of the Financial System Review Opening statement Tiff Macklem, Carolyn Rogers Ottawa, Ontario Press conference following the release of the Financial System Review. Content Type(s): Press, Speeches and appearances, Opening statements Research Topic(s): Coronavirus disease (COVID-19), Financial stability, Monetary policy, Recent economic and financial developments
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 Research Topic(s): Financial institutions, Financial stability JEL Code(s): E, E2, E27, E3, E37, E4, E44, G, G1, G2, G21, G23