Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/197858 
Year of Publication: 
2018
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2018-5
Publisher: 
Bank of Canada, Ottawa
Abstract: 
We identify the drivers of unsecured and collateralized loan volumes, rates and haircuts in Canada using the Bayesian model averaging approach to deal with model uncertainty. Our results suggest that the key friction driving behaviour in this market is the collateral reallocation cost faced by borrowers. Borrowers therefore adjust unsecured lending in response to changes in short-term cash needs, and use repos to finance persistent liquidity demand. We also find that lenders set rates and haircuts taking into account counterparty credit risk and collateral market price volatility.
Subjects: 
Financial markets
Wholesale funding
JEL: 
C55
E43
G23
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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