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The interdependencies of Canadian financial institutions: An application to climate transition shocks

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Listed:
  • Bruneau, Gabriel
  • Ojea-Ferreiro, Javier
  • Plummer, Andrew
  • Tremblay, Marie-Christine
  • Witts, Aidan

Abstract

We develop a methodological framework to analyse systemic risks capturing both direct and indirect (or systemic) effects. We apply it to climate transition shocks in the context of Canada. We use scenario analysis to capture the direct effects—in the form of credit, market and liquidity risks—on public and private assets and derivatives portfolios of deposit-taking institutions, life insurance companies, pension funds and investment funds. We extend an agent-based model to capture the indirect—or systemic effects—via an interconnected financial system. The model assumes behavioural and regulatory rules and includes transmission channels such as cross-holding positions, business similarities, common exposures and fire sales. We find that delayed climate transition scenario may only modestly transmit through the Canadian financial system, but systemic interconnections amplify these effects.

Suggested Citation

  • Bruneau, Gabriel & Ojea-Ferreiro, Javier & Plummer, Andrew & Tremblay, Marie-Christine & Witts, Aidan, 2025. "The interdependencies of Canadian financial institutions: An application to climate transition shocks," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 6(3).
    • Handle: RePEc:eee:lajcba:v:6:y:2025:i:3:s2666143825000018
    DOI: 10.1016/j.latcb.2025.100163
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    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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