G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages

• November 22, 2022

  Tracking the financial vulnerabilities of households and the housing market

  The Bank of Canada is publishing a new set of indicators of financial vulnerabilities. This will allow households, the private sector, financial authorities and governments to better understand and monitor the evolution of two key vulnerabilities in the financial system: the elevated level of household indebtedness and high house prices.

  Content Type(s): Publications, Financial System Hub articles Topic(s): Credit and credit aggregates, Financial stability, Housing, Monetary and financial indicators, Recent economic and financial developments, Sectoral balance sheet JEL Code(s): D, D1, D14, D8, D84, E, E5, G, G2, G21, R, R2, R21

• Variable-rate mortgages with fixed payments: Examining trigger rates

  Staff Analytical Note 2022-19 Stephen Murchison, Maria teNyenhuis

  We estimate the share of variable-rate mortgages with fixed payments that reached the so-called trigger rate—the interest rate at which mortgage payments no longer cover the principal. Amid rising interest rates, this share was close to 50% at the end of October 2022 and could potentially reach 65% in 2023.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Credit and credit aggregates, Financial institutions, Interest rates, Recent economic and financial developments JEL Code(s): D, D1, E, E4, E5, G, G2, G21

• 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 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 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 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

• 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 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 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

• Unregulated Lending, Mortgage Regulations and Monetary Policy

  Staff Working Paper 2022-28 Ugochi Emenogu, Brian Peterson

  This paper evaluates the effectiveness of macroprudential policies when regulations are uneven across mortgage lender types. We look at credit tightening that results from macroprudential regulations and examine how much of it is counteracted by credit shifting to unregulated lenders. We also study the impact of monetary policy tightening when some lenders are unregulated.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial system regulation and policies, Monetary policy transmission JEL Code(s): E, E4, E44, E5, E50, E52, E58, G, G2, G21, G23, G28

• Potential netting benefits from expanded central clearing in Canada’s fixed-income market

  Staff Analytical Note 2022-8 Jessie Ziqing Chen, Johannes Chen, Shamarthi Ghosh, Manu Pandey, Adrian Walton

  We assess whether more central clearing would enhance the resilience of Canadian fixed-income markets. Our analysis estimates the potential benefits of balance sheet netting under scenarios where central clearing is expanded to new participants.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Credit risk management, Financial institutions, Financial markets JEL Code(s): D, D4, G, G1, G12, G2, G21, G29

• 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 Topic(s): Financial institutions, Financial stability JEL Code(s): E, E2, E27, E3, E37, E4, E44, G, G1, G2, G21, G23