Financial institutions
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Pocket Banks and Out-of-Pocket Losses: Links between Corruption and Contagion
The author describes a model with a corrupt banking system, in which bankers knowingly lend at market interest rates to back projects riskier than the market rate indicates. -
Bank Failures and Bank Fundamentals: A Comparative Analysis of Latin America and East Asia during the Nineties using Bank-Level Data
The author develops the first comparative empirical study of bank failures during the nineties between East Asia and Latin America using bank-level data, in order to address the following two questions: (i) To what extent did individual bank conditions explain bank failures? (ii) Did mainly the weakest banks, in terms of their fundamentals, fail in the crisis countries? -
June 18, 2005
Recent Trends in Canadian Defined-Benefit Pension Sector Investment and Risk Management
Defined-benefit (DB) pension plans account for the majority of employer pension fund assets. In recent years, a number of DB plans have become underfunded, in sharp contrast to the 1990s, when many plans had large actuarial surpluses. The deterioration in the financial health of DB plans has underscored various longer-term structural issues that could make it increasingly difficult for plan sponsors to manage the financial risks of these plans. Tuer and Woodman examine how funding deficits, a greater focus on plan liabilities, a low yield environment, and changing investment beliefs are influencing investment decisions in the Canadian DB pension sector. They review the funding of DB plans, changing views on the equity-risk premium, and the shift towards liability-centred approaches to investment and how these developments are affecting pension sector investment. They also consider additional influences on the pension sector, including the limited supply of long-term bonds, the elimination of the foreign-property rule, and the movement towards fair-value accounting and a financial-economics approach to actuarial valuation, as well as their implications for financial markets. -
Efficiency and Economies of Scale of Large Canadian Banks
The authors measure the economies of scale of Canada's six largest banks and their costefficiency over time. Using a unique panel data set from 1983 to 2003, they estimate pooled translog cost functions and derive measures of relative efficiency and economies of scale. -
An Analysis of Closure Policy under Alternative Regulatory Structures
The author develops a theoretical model of bank closure. The regulatory decision about bank failure consists of two parts: whether to close and how to close. -
November 22, 2004
The Evolving Financial System and Public Policy: Conference Highlights and Lessons
At the 12th annual Bank of Canada economic conference, held in Ottawa on 4 and 5 December 2003, representatives from various public and private organizations and Bank of Canada staff discussed papers presented on three key issues affecting the financial system: financial contagion, the implications of bank diversification, and financial sector regulation. Papers on financial contagion studied the effect of globalization on Canadian foreign-asset exposures, developed a general-equilibrium model of a competitive interfirm lending market in which firms can borrow or lend, and used market-based indicators to determine the probability that contagion can be generated by interbank exposures. The papers on bank diversification focused on the links between the changing behaviour of financial institutions and risk-return trade-offs. Issues of financial sector regulation included the relationship between governance and financial sector soundness, the theoretical basis of bank regulations for capital requirements, and the implications of bank capital requirements for the transmission of monetary policy. A panel discussion provided extended discussion of the conference papers. -
November 21, 2004
Summary of the G-20 Workshop on Developing Strong Domestic Financial Markets, 26-27 April 2004
G-20 representatives, academics, market participants, and members of international financial institutions were brought together in Ottawa to explore the connection between robust financial markets and economic growth and development, share experiences, and to develop policy recommendations, where possible. Participants identified several areas they deemed critical for fostering strong domestic financial markets and reducing external vulnerability: sound macroeconomics policies, strengthened financial infrastructures and banking systems, and exchange rate flexibility for countries with widely open capital accounts. Papers presented in the six sessions and keynote address highlighted a number of issues, including currency mismatches, the sequence of financial liberalization and supervisory reforms, the development of local financial markets, infrastructure building and governance, and appropriate incentives. -
Finance Constraints and Inventory Investment: Empirical Tests with Panel Data
The author empirically tests two aspects of the interaction between financial variables and inventory investment: negative cash flow and finance constraints due to asymmetric information. -
Market Valuation and Risk Assessment of Canadian Banks
The authors apply the asset-valuation model developed by Rabinovitch (1989) to six publicly traded Canadian banks over the period 1982–2002.