We examine the impact of the 2009 amendments to the Canadian Bankruptcy and Insolvency Act on insolvency decisions. Rule changes steered debtors out of division I proposals and into the more cost-effective division II proposals. This also led to a significant substitution out of bankruptcies and...

We model the asset-opacity choice of an intermediary subject to rollover risk in wholesale funding markets. Greater opacity means investors form more dispersed beliefs about an intermediary’s profitability. The endogenous benefit of opacity is lower fragility when profitability is expected to...

Canada is in the midst of developing three new core payment systems: Lynx, Settlement Optimization Engine (SOE) and Real-Time Rail (RTR). Lynx and SOE will replace the current Large Value Transfer System (LVTS) and Automated Clearing Settlement System (ACSS), whereas RTR will be a new...

We study the role of intermediaries (brokers) in the Canadian mortgage market. In this market, consumers can search for quotes in one of two ways: on their own or via a broker. We provide descriptive evidence that borrowers who transact through brokers are different from those who do not....

Dealer networks provide essential intermediation services in over-the-counter markets. We document the response of dealer networks to the arrival of new public information. We find that after public news releases, dealer networks become more complex and channel larger flows of securities between...

Can securities be settled on a blockchain and, if so, what are the gains relative to existing settlement systems? We consider a blockchain that ensures delivery versus payment by linking transfers of assets with payments and operates using a proof-of-work protocol. The main benefit of a...

We present a model in which banks and other financial intermediaries face both occasionally binding borrowing constraints and costs of equity issuance. Near the steady state, these intermediaries can raise equity finance at no cost through retained earnings. However, even moderately large shocks...

We analyze how a wealth shift to emerging countries may lead to instability in developed countries. Investors exposed to expropriation risk are willing to pay a safety premium to invest in countries with good property rights. Domestic intermediaries compete for such cheap funding by carving out...

We model the opacity and deposit rate choices of banks that imperfectly compete for uninsured deposits, are subject to runs, and face a threat of entry. We show how shocks that increase bank competition or bank transparency increase deposit rates, costly withdrawals, and thus bank fragility....

This paper explains the nature of interest rates in the U.S. federal funds market after the 2007-09 financial crisis. We build a model of the over-the-counter lending market that incorporates new aspects of the financial system: abundance of liquidity, different regulatory standards for banks,...