G01 - Financial Crises

• December 15, 2016

  Toward More Resilient Markets: Over-the-Counter Derivatives Reform in Canada

  Financial System Review - December 2016 Michael Mueller, André Usche

  In Toward More Resilient Markets: Over-the-Counter Derivatives Reform in Canada, Michael Mueller and André Usche show that the implementation of derivatives market reforms in Canada is well under way and has lessened vulnerabilities. But accompanying changes to market structure have both positive and negative effects that require ongoing attention from authorities.

  Content Type(s): Publications, Financial System Review articles Topic(s): Financial markets, Financial stability, Financial system regulation and policies JEL Code(s): G, G0, G01, G1, G15, G2, G28
• December 15, 2016

  Monitoring Shadow Banking in Canada: A Hybrid Approach

  Financial System Review - December 2016 Bo Young Chang, Gitanjali Kumar, André Usche, Michael Januska

  In Monitoring Shadow Banking in Canada: A Hybrid Approach, Bo Young Chang, Michael Januska, Gitanjali Kumar and André Usche discuss how lending that occurs outside the traditional banking system provides benefits to the economy but must be monitored carefully for potential financial sector vulnerabilities. They describe how the Bank defines and measures shadow banking and how it assesses vulnerabilities in the sector, using an approach that examines both markets and entities.

  Content Type(s): Publications, Financial System Review articles Topic(s): Financial institutions, Financial markets, Financial stability JEL Code(s): G, G0, G01, G2, G23
• November 17, 2016

  Recent Changes to the Bank of Canada’s Emergency Lending Assistance Policy

  Bank of Canada Review - Autumn 2016 Christopher Graham, Natasha Khan, Alexandra Lai

  Emergency Lending Assistance (ELA) is a discretionary last-resort collateralized loan or ad-vance by the Bank of Canada to eligible financial institutions (FIs) and financial market infrastructures (FMIs) facing serious liquidity problems. In December 2015, the Bank revised its ELA policy to (i) replace the requirement for an FI’s solvency with the requirement for a credible recovery and resolution framework; (ii) include mortgages as eligible collateral; and (iii) clarify both the eligibility requirements for FMIs and provincially regulated deposit-taking FIs.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial stability, Financial system regulation and policies, Lender of last resort JEL Code(s): E, E5, E58, G, G0, G01, G2
• November 17, 2016

  Market Operations and Liquidity Provision at the Bank of Canada

  Bank of Canada Review - Autumn 2016 Mark de Guzman

  The Bank of Canada’s framework for market operations and liquidity provision describes how and when central bank liquidity might be offered with regards to the implementation of monetary policy and for supporting the stability of the Canadian financial system. Market participants can therefore plan their transactions knowing that the Bank stands ready to help manage system liquidity to support its objectives for monetary policy and financial stability.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial markets, Financial stability, Monetary policy framework, Monetary policy implementation, Monetary policy transmission, Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E52, E58, G, G0, G01

• Monetary Policy Tradeoffs Between Financial Stability and Price Stability

  Staff Working Paper 2016-49 Malik Shukayev, Alexander Ueberfeldt

  We analyze the impact of interest rate policy on financial stability in an environment where banks can experience runs on their short-term liabilities, forcing them to sell assets at fire-sale prices.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial stability, Monetary policy framework, Monetary policy transmission JEL Code(s): D, D6, D62, E, E3, E32, E4, E44, G, G0, G01

• Fragility of Resale Markets for Securitized Assets and Policy of Asset Purchases

  Staff Working Paper 2016-46 Martin Kuncl

  Markets for securitized assets were characterized by high liquidity prior to the recent financial crisis and by a sudden market dry-up at the onset of the crisis. A general equilibrium model with heterogeneous investment opportunities and information frictions predicts that, in boom periods or mild recessions, the degree of adverse selection in resale markets for securitized assets is limited because of the reputation-based guarantees by asset originators.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Economic models, Financial markets, Financial stability, Financial system regulation and policies JEL Code(s): E, E3, E32, E5, G, G0, G01, G2

• Time-Varying Crash Risk: The Role of Stock Market Liquidity

  Staff Working Paper 2016-35 Peter Christoffersen, Bruno Feunou, Yoontae Jeon, Chayawat Ornthanalai

  We estimate a continuous-time model with stochastic volatility and dynamic crash probability for the S&P 500 index and find that market illiquidity dominates other factors in explaining the stock market crash risk. While the crash probability is time-varying, its dynamic depends only weakly on return variance once we include market illiquidity as an economic variable in the model.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Econometric and statistical methods, Financial stability JEL Code(s): G, G0, G01, G1, G12

• International Banking and Cross-Border Effects of Regulation: Lessons from Canada

  Staff Working Paper 2016-34 H. Evren Damar, Adi Mordel

  We study how changes in prudential requirements affect cross-border lending of Canadian banks by utilizing an index that aggregates adjustments in key regulatory instruments across jurisdictions.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): F, F3, F34, G, G0, G01, G2, G21

• The Role of Central Banks in Promoting Financial Stability: An International Perspective

  Staff Discussion Paper 2016-15 Rose Cunningham, Christian Friedrich

  The 2007–09 global financial crisis has led policy-makers around the world, including central banks, to refocus their efforts to promote financial stability. As part of this process, central banks became quite active in supporting financial stability in a variety of ways, such as publicly sharing their assessments of financial system vulnerabilities and risks and helping to strengthen regulation, supervision and macroprudential measures.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Financial stability, Financial system regulation and policies JEL Code(s): E, E5, G, G0, G01, G2, G28

• Timing of Banks’ Loan Loss Provisioning During the Crisis

  Staff Working Paper 2016-27 Leo de Haan, Maarten van Oordt

  We estimate a panel error correction model for loan loss provisions, using unique supervisory data on flow of funds into and out of the allowance for loan losses of 25 Dutch banks in the post-2008 crisis period. We find that these banks aim for an allowance of 49% of impaired loans.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial stability JEL Code(s): G, G0, G01, G2, G21, G3, G32