This paper estimates the implied cost of equity for Canadian and U.S. firms using a methodology based on the dividend discount model and utilizing firms' current stock price and analysts' forecasted earnings. We find that firm size and firm stock liquidity are negatively related to cost of...

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...

Using quarterly financial statements and stock market data from 1982 to 2010 for the six largest Canadian chartered banks, this paper documents positive co-movement between Canadian banks' capital buffer and business cycles. The adoption of Basel Accords and the balance sheet leverage cap...

The Basel III framework comes with the requirement of a minimum leverage ratio acting as a backstop to the existing Basel II risk-based capital ratio. Given that Canada and the US have adopted similar double capital rules prior to Basel III, we study the implications of these two rules on bank...

Implicit government guarantees of banking-sector liabilities reduce market discipline by private sector stakeholders and temper the risk sensitivity of funding costs. This potentially increases the likelihood of bailouts from taxpayers, especially in the absence of effective resolution...

Two models of default risk are prominent in the financial literature: Merton's structural model and Altman's reduced-form model. The former has the benefit of being responsive, since the probabilities of default can continually be updated with the evolution of firms' asset values. Its main flaw...

We examine the impact of the recently introduced Basel III countercyclical capital buffer (CCyB) on foreign lending activities of Canadian banks. Using panel data for the six largest Canadian banks and their foreign activities in up to 94 countries, we explore the variation in CCyB rates across...

Canada and the United States are highly similar economies, as would be expected given the many common historical influences on economic policy and regulation, the shared geography and the high degree of economic interaction, amplified powerfully in recent decades by the 1989 Canada-US Free Trade...