Since the financial crisis, attention has focused on central counterparties (CCPs) as a solution to systemic risk for a variety of financial markets, ranging from repurchase agreements and options to swaps. However, internationally accepted standards and the academic literature have left...

This paper explores the reliability of using prices of credit default swap contracts (CDS) as indicators of default probabilities during the 2007/2008 financial crisis. We use data from the Canadian financial system to show that these publicly available risk measures, while indicative of initial...

We employ a comprehensive data set and a variety of methods to provide evidence on the magnitude of large banks’ funding advantage in Canada, and on the extent to which market discipline exists across different securities issued by the Canadian banks. The banking sector in Canada provides a...

The Basel capital framework plays an important role in risk management by linking a bank's minimum capital requirements to the riskiness of its assets. Nevertheless, the risk estimates underlying these calculations may be imperfect, and it appears that a cyclical bias in measures of...

Bank liability guarantee schemes have traditionally been viewed as costless measures to shore up investor confidence and prevent bank runs. However, as the experiences of some European countries, most notably Ireland, have demonstrated, the credibility and effectiveness of these guarantees are...

I study rollover risk in the wholesale funding market when intermediaries can hold liquidity ex ante and are subject to fire sales ex post. Precautionary liquidity restores multiple equilibria in a global rollover game. An intermediate liquidity level supports both the usual run equilibrium and...

The author proposes a new test for financial contagion based on a non-parametric measure of the cross-market correlation. The test does not depend on the assumption that the data are drawn from a given probability distribution; therefore, it allows for maximal flexibility in fitting into the...

Do short sales restrictions have an impact on security prices? We address this question in the context of a natural experiment surrounding the short sale ban of 2008 using a comprehensive sample of Canadian stocks cross-listed in the U.S. Among financial stocks, which were singled out by the ban...

This paper assesses the effectiveness and associated externalities that arise when macroprudential policies (MPPs) are used to manage international capital flows. Using a sample of up to 139 countries, we examine the impact of eight different MPP measures on cross-border bank flows over the...

This paper studies the effects of a monetary policy expansion in the United States during times of high financial stress. The analysis is carried out by introducing a smooth transition factor model where the transition between states (“normal” and high financial stress) depends on a...