Financial system regulation and policies

• Quantifying the Economic Benefits of Payments Modernization: the Case of the Large-Value Payment System

  Staff Working Paper 2021-64 Neville Arjani, Fuchun Li, Zhentong Lu

  Canada is undertaking a major initiative to modernize its payments ecosystem. The modernized ecosystem is expected to bring significant benefits to Canadian financial markets and the overall economy. We develop an empirical framework to quantify the economic benefits of modernizing the payment system in Canada.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial system regulation and policies, Payment clearing and settlement systems JEL Code(s): C, C3, E, E4, E42, G, G1, G2, G28

• The Countercyclical Capital Buffer and International Bank Lending: Evidence from Canada

  Staff Working Paper 2021-61 David Xiao Chen, Christian Friedrich

  We examine the impact of the CCyB on foreign lending activities of Canadian banks. We show that the announcement of a tightening in another country’s CCyB leads to a decrease in the growth rate of cross-border lending between Canadian banks and borrowers in that other country.

  Content Type(s): Staff research, Staff working papers Topic(s): Credit risk management, Financial institutions, Financial stability, Financial system regulation and policies, International topics JEL Code(s): E, E3, E32, F, F2, F21, F3, F32, G, G2, G21, G28

• Democratic Political Economy of Financial Regulation

  Staff Working Paper 2021-59 Igor Livshits, Youngmin Park

  We offer a theory of how inefficiently lax financial regulation could arise in a democratic society.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial stability, Financial system regulation and policies, Housing, Interest rates JEL Code(s): E, E4, E43, E44, G, G0, G01, G2, G21, G28, P, P4, P48

• Are Bank Bailouts Welfare Improving?

  Staff Working Paper 2021-56 Malik Shukayev, Alexander Ueberfeldt

  Financial sector bailouts, while potentially beneficial during a crisis, might lead to excessive risk taking if anticipated. Taking expectations and aggregate risk implications into account, we show that bailouts can be welfare improving, but only if capital adequacy constraints are sufficiently tight.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): D, D6, D62, E, E3, E32, E4, E44, G, G0, G01
• October 7, 2021

  The long and short of it: A balanced vision for the international monetary and financial system

  Remarks (delivered virtually) Tiff Macklem Council on Foreign Relations Washington, D.C.

  Governor Tiff Macklem advocates for global coordination to strengthen the international monetary and financial system.

  Content Type(s): Press, Speeches and appearances, Remarks Topic(s): Development economics, Exchange rate regimes, Financial system regulation and policies, Foreign reserves management, International financial markets, International topics, Trade integration
• October 7, 2021

  Investing in global progress

  Speech summary Tiff Macklem Council on Foreign Relations Washington, D.C.

  Governor Tiff Macklem makes the case for greater cooperation to shape a stronger international monetary and financial system.

  Content Type(s): Press, Speeches and appearances, Speech summaries Topic(s): Development economics, Exchange rate regimes, Financial system regulation and policies, Foreign reserves management, International financial markets, International topics, Trade integration

• A Q-Theory of Banks

  Staff Working Paper 2021-44 Juliane Beganau, Saki Bigio, Jeremy Majerovitz, Matías Vieyra

  Using stock market data on banks, we show that the book value of loans recognizes losses with a delay. This delayed accounting is important for regulation because the requirements regulators impose are based on book values.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): E, E4, E44, G, G2, G21, G3, G32, G33

• Reaching for yield or resiliency? Explaining the shift in Canadian pension plan portfolios

  Staff Analytical Note 2021-20 Sébastien Betermier, Nicholas Byrne, Jean-Sébastien Fontaine, Hayden Ford, Jason Ho, Chelsea Mitchell

  “Reach for yield”—This is the commonly heard explanation for why pension plans shift their portfolios toward alternative assets. But we show that the new portfolios also hold more bonds, offer lower average returns and produce smaller and less volatile solvency deficits. These shifts are part of a broader strategy to reduce solvency risk.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial institutions, Financial markets, Financial system regulation and policies JEL Code(s): G, G1, G11

• Stressed but not Helpless: Strategic Behaviour of Banks Under Adverse Market Conditions

  Staff Working Paper 2021-35 Grzegorz Halaj, Sofia Priazhkina

  Our stress-testing tool considers banks under stress that can strategically manage their balance sheets. Using confidential Canadian supervisory data, we assess whether bank behaviour to maximize shareholder value can amplify a hypothetical stress scenario.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Economic models, Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): C, C6, C63, C7, C72, G, G2, G21

• An Optimal Macroprudential Policy Mix for Segmented Credit Markets

  Staff Working Paper 2021-31 Jelena Zivanovic

  How can macroprudential policy and monetary policy stabilize segmented credit markets? Is there a trade-off between financial stability and price stability? I use a theoretical model to evaluate the performance of alternative policies and find the optimal mix of macroprudential and monetary policy in response to aggregate shocks.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Credit risk management, Financial stability, Financial system regulation and policies JEL Code(s): E, E3, E30, E4, E44, E5, E50