Bank of Canada: Monitoring Shadow Banking in Canada: A Hybrid Approach

Bo Young Chang, Michael Januska, Gitanjali Kumar and André Usche

  • ƒThe shadow banking sector in Canada provides an alternative to banks for intermediating credit to the economy. However, it also has the potential to increase nancial sector vulnerabilities, since the sector is not prudentially regulated.
  • ƒThe Bank of Canada regularly assesses potential vulnerabilities emanating from the shadow banking sector as part of its monitoring of threats to the stability of the Canadian financial system. The Bank’s current approach is a hybrid one that examines both markets and entities to ensure broad coverage and capture new parts of the sector as it evolves.
  • ƒBased on available information, we judge that the shadow banking sector does not pose large vulnerabilities for the Canadian nancial system at this time, mainly because of the limited degree of liquidity and maturity mismatch as well as low leverage in most parts of the sector. The relatively small size of individual subsectors currently also limits the potential for systemic stress.
  • ƒHowever, significant gaps remain in data and knowledge and are likely to persist because of the dynamic nature of the shadow banking sector. The Bank continues to collaborate with domestic and international authorities to ll in these gaps, where possible.

The full paper is available here.

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