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An Analysis of Indicators of Balance-Sheet Risks at Canadian Financial Institutions

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Abstract

This article examines four indicators of balance-sheet risks—leverage, capital, asset liquidity and funding—among different types of financial institutions in Canada over the past three decades. It also discusses relevant developments in the banking sector that could have contributed to the observed dynamics. The authors find that the various risk indicators decreased during the period for most of the non-Big Six financial institutions, but remained relatively unchanged for the Big Six banks. In addition, the balance-sheet risk indicators became more heterogeneous across financial institutions. The observed overall decline and increased heterogeneity follow certain regulatory changes, such as the introduction of the liquidity guidelines on funding in 1995 and the implementation of bank-specific leverage requirements in 2000. Given that these regulations required more balance-sheet risk management, they have likely contributed to the increased resilience of the banking sector.

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Article provided by Bank of Canada in its journal Bank of Canada Review.

Volume (Year): 2012 (2012)
Issue (Month): Summer ()
Pages: 21-33

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Handle: RePEc:bca:bcarev:v:2012:y:2012:i:summer12:p:21-33

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