We emphasize and encourage links between academic researchers and practitioners at financial institutions to bring theoretical techniques to bear on real-world issues.

Financial Stability and Regulatory Compliance

The 2008 financial crisis demonstrated how a seemingly delimited event can have consequences that span far beyond any one company or sector. When a large, interconnected organization fails or experiences significant disruption, a ripple effect can spread through the marketplace, destabilizing economies and causing entire industries to collapse. It often behooves intervention on the part of governments and regulators to prevent further contagion and design policy responses that can avert or mitigate similar crises in the future. Organizational leaders must remain vigilant to anticipate and respond to financial instability and systemic phenomena, and GRI stands ready with information and support.

The corrective measures taken by public authorities to hedge against volatility or system failure can also be a source of concern in and of themselves for risk managers. Government oversight, compliance demands and ethical standards impose duties and obligations that financial institutions must satisfy. Failure to keep abreast of regulation and industry best practices can jeopardize a firm’s legal standing, reputation and earnings. GRI is further committed to helping our members improve processes, refine governance systems and build strategies to highlight the most salient regulatory risks.

Unwinding Pandemic Stimulus: The Bank of Canada’s Narrow Path to Successful Policy Normalization

Unwinding Pandemic Stimulus: The Bank of Canada’s Narrow Path to Successful Policy Normalization James K. Stewart, Executive in Residence, Global Risk Institute Hugh O’Reilly, Executive in Residence, Global Risk Institute Victoria Guo, Director, Research, Global Risk Institute Download the Executive Summary – PDF Version Download the Executive Summary – PDF Version

World Economic Forum’s Global Risks Report 2022: The Canadian Perspective

World Economic Forum’s Global Risks Report 2022: The Canadian Perspective Victoria Guo, Director, Research, Global Risk Institute Download the full Report – PDF Version Abstract The World Economic Forum published its Global Risks Report 2022 (the Report) in January, with the latest Global Risks Perception Survey (GRPS) results in fall 2021. The Report is based… View Article

Building a Stronger Economic Future: Key Takeaways from Federal Budget 2022

Building a Stronger Economic Future: Key Takeaways from Federal Budget 2022 Victoria Guo, Director, Research, GRI Download the full Report – PDF Version ABOUT THIS REPORT: Finance Minister Chrystia Freeland delivered the federal budget (“Budget 2022”) on Thursday, April 7th, 2022. “A Plan to Grow Our Economy and Make Life More Affordable,” Budget 2022 sets… View Article

Emerging Disruption: Buy Now Pay Later in Canada

This report examines the potential of BNPL from a Canadian perspective. We introduce the current state of BNPL in Canada and the potential evolution pattern in the future. In addition, various risks associated with the BNPL disruption are discussed to help financial sector leaders better assess opportunities in the market.

US Federal Reserve Policy In Transition: Key Impacts for Canadian Fixed Income Markets

US Federal Reserve Policy In Transition: Key Impacts for Canadian Fixed Income Markets James K. Stewart, Executive in Residence, Global Risk Institute Victoria Guo, Director Research, Global Risk Institute Download the full Executive Summary – PDF Version Download the full paper – PDF Version

Mortgage Foreclosure, Forbearance, and Refinancing

This paper examines the effect of foreclosure prevention policies during the pandemic on refinancing activities in the United States.

TRANSITIONING FROM THE PANDEMIC: Towards a More Balanced Fiscal Policy

As Canada’s COVID-19 vaccination rates achieve critical thresholds in mid 2021, fundamental changes in fiscal policy are recommended to boost the Canadian economy’s supply side and make governments’ demand-side support more effective.

International Survey of Earthquake Insurance Guarantee Schemes

Earthquakes can strike without warning near large population centres, threatening human life and inflicting massive physical and social damage. Low-probability, high-impact events of this kind can present unique challenges for risk management professionals.

Systemic Risk Driven Portfolio Selection

The balance between risk and return has been at the center of portfolio construction methodologies. Although the asset allocation literature has primarily focused on a firm’s individual risk, the Global 2007-2009 financial crisis highlighted the importance of accounting for systemic events, i.e., extreme forms of risk that can have severe consequences on the financial system.

Systemic Risk Measures & Portfolio Choice

Since the last financial crisis, numerous attempts have been made to identify and measure the systemic risk of financial institutions. In this paper, we develop a framework for the optimal portfolio choice based on an exogenous systemic risk measure.

Collateral Rule

In this report the author provides the first comprehensive study of the collateral rule in the market of cleared credit default swaps by studying how margins depend on portfolio risks and market conditions, and what the implications are for theoretical models of collateral equilibrium.

The Case of Open Banking

In this report the authors share their insights and identify some of the key changes and issues that the financial sector may be facing in the next few years as the use of open APIs becomes more ‘mainstream’.

Robust Hedging in Incomplete Markets

The research report discusses the development of a hedging strategy for fund manager who faces uncertainty about the expected return on the assets as well as uncertainty about the expected growth in liabilities.

The Challenges of Implementing IFRS 9 – Part 2

At the GRI we expect the transition to IFRS 9 to present challenges to the various stakeholders. There is a clear need for education and discussion across the financial services industry as we approach the implementation date this November. In this paper we focus on the implications of IFRS 9 going forward, particularly as Canadian banks are required to “go live” in November.

A Parsimonious Parametric Model for Generating Margin Requirements for Futures

Although regulatory rules for derivatives margin requirements have not yet been implemented they are currently under active discussion. In the USA, margins of derivative positions cleared by a central counter-party (CCP) must adhere to the 2010 Dodd-Frank Act, which reinforces the role of their supervision by the Securities Exchange Commission and the Commodity Futures Trading Commission. In Europe, EMIR regulations will require more stable margin requirements and an increased confidence level for CCP losses when a client defaults.

Incentives Behind Clearinghouse Default Waterfalls

We study the incentives provided by the conventional clearinghouse default loss allocation mechanism via a theoretical model. The equilibrium solution to our model provides an analytical characterization of important layers of a clearinghouse’s loss-absorbing capital, systemic risk, and economic surplus from centrally cleared trading.

Analysis of the SRISK Measure and Its Application to the Canadian Banking and Insurance Industries

In this paper, we analyse, modify, and apply one of the most widely used measures of systemic risk, SRISK, developed by Brownlees and Engle (2016). The measure is defined as the expected capital shortfall of a firm conditional on a prolonged market decline. We argue that segregated funds, also known as separate accounts in the US, should be excluded from actuarial liabilities when SRISK is calculated for insurance companies

Shadow Banking: Non-bank Credit Intermediation Heightens Risks for the Global Financial System

As the shadow banking sector continues to grow, what are the impacts on the overall financial system? How are global financial markets affected by shadow banks and what are the areas to watch? Sheila Judd, Executive in Residence at Global Risk Institute discusses these ideas in this paper on Shadow Banking.

The Challenges of Implementing IFRS 9-Impairment

Canadian Banks and credit unions are in the midst of implementing one of the most challenging accounting changes in recent memory, when they move from an Incurred Loss (IAS 39) to an Expected Credit Loss (“ECL”) (IFRS 9) accounting standard. This article provides an overview of IFRS 9 and its potential impacts.

Regulating Dark Trading: Order Flow Segmentation and Market Quality

Dark trading and its regulation are critically important issues in modern markets, yet many questions about its impact remain unanswered. Regulators around the world are grappling to determine the most appropriate regulatory regime to ensure that they maximize the benefits associated with dark trading, whilst minimizing any potential costs.

Market Liquidity: One door closes, another one opens?

Market liquidity is in a transition and the capital markets are undergoing a significant transformation. Like any transition, this one too has its share of challenges and yet, provides many opportunities to participants.

Using the Hadoop Ecosystem to meet Basel 239 Requirements

In this paper, we define the Hadoop ecosystem, its components, and how it can help with risk data aggregation and management holistically.

Systemic Risk Survey

Systemic Risk, Policies, & Data Needs. This research survey on Systemic Risk was funded by Global Risk Institute & lead by Agostino Capponi, PhD of Columbia University.

Low rate ever higher debt

The explosion of debt levels world-wide, fueled by extremely low interest rates, may be the biggest and most immediate risk facing the financial sector.

Defined Benefit Plans Are Disappearing

Are variables the answer? In an effort to de-risk, many private companies and public institutions are moving to defined contribution (DC) plans.

Variable Annuities: Fees too high or too low?

To illustrate the basic idea of how a Variable Annuity can mitigate this risk, we examine a very simple product: a Guaranteed Minimum Withdrawal Benefit (GMWB).

Not too big to fail!

The 2008 financial crisis resulted in bank failures, tax payer funded bail outs and new regulations. “Never again” say bank regulators and politicians.

Construction of Mortality Indexes

The Do’s and don’ts – What Makes a Good Mortality Index? With appropriate mortality indexes, one can construct standardized mortality-linked securities.

Say Hello To “Basel IV”

Regulatory rules governing banks – “Basel IV” risks undermining investment made in risk management human capital & technology, as well as perversely incenting banks to hold higher-risk assets

Funding Value Adjustments and Fair Value

Valuing Derivatives: Funding Value Adjustments and Fair Value Related Project: Risk Management & Market Liquidity ABSTRACT The authors examine whether a bank should make a funding value adjustment (FVA) when valuing derivatives. They conclude that an FVA is justifiable only for the part of a company’s credit spread that does not reflect default risk. They… View Article