Bank Of Canada Research Articles

A big data analytics model for customer churn prediction in the retiree segment

Undoubtedly, the change in consumers’ choices and expectations, stemming from the emerging technology and also significant availability of different products and services, created a highly competitive landscape in various customer service sectors, including the financial industry. Accordingly, the Canadian banking industry has also become highly competitive due to the threats and disruptions caused by not only direct competitors, but also new entrants to the market.The primary objective of this paper is to construct a predictive churn model by utilizing big data, including the structured archival data, integrated with unstructured data from sources such as online web pages, the number of website visits and phone conversation logs, for the first time in the financial industry. It also examines the effect of different aspects of customers’ behavior on churning decisions. The Datameer big data analytics tool on the Hadoop platform and predictive techniques using the SAS business intelligence system were applied to study the client retirement journey path and to create a churn prediction model. By deploying the above systems, we were able to uncover a wealth of data and information associated with over 3 million customers’ records within the retiree segment of the target bank, from 2011 to 2015.

Bank competition, stability, and intervention quality

AbstractWe use a flexible semi‐parametric estimation approach and a sample of 7,227 U.S., U.K., and Canadian banks for 2009–2015 to provide evidence that banking stability is non‐linearly determined by competition. We show that stability is not monotonic against competition, and may increase and decrease at high competition, has a mixed behaviour at medium competition, and increases at low competition. This non‐monotonic stability behaviour at different competition levels is attributed to the intervention quality, which is found to be an important determinant of the competition–stability relation. It is non‐linearly related to and being revised at different competition levels. As intervention is a policy variable, its level can be adjusted to reduce the competition effects on stability. We illustrate that for the U.S. banking sector, the intervention quality has to hedge these competition effects. Regulators should treat intervention quality as a “hedging instrument” against the destabilizing competition effects.

Influence of the relative age effect on children\u2019s scores obtained from the Canadian assessment of physical literacy

BackgroundAge grouping by the imposition of a cut-off date, common in sports and education, promotes a relative age difference that is associated with developmental advantages for children who are born on the “early side” of the cut-off date and disadvantages to those born later in the same year, which is known as the relative age effect (RAE) bias. Acquiring an adequate level of physical literacy is important for children to remain active for life. The Canadian Assessment of Physical Literacy (CAPL) is an assessment protocol that encompasses measures in the domains of children’s Daily Behaviours, Physical Competence, Motivation and Confidence, and Knowledge and Understanding. The purpose of this study was to ascertain whether the CAPL scores were susceptible to the RAE, which could affect our interpretation of the CAPL findings.MethodsThis cross-sectional study examined if scores obtained in the CAPL (i.e., the four domains individually and the total CAPL score) were susceptible to the RAE in children aged 8 to 12 years and, if so, which physical competence assessments (movement skills, cardiorespiratory, strength, muscular endurance, flexibility, and body composition measurements) were more susceptible. Participants (n = 8233, 49.8% boys) from the Royal Bank of Canada–CAPL Learn to Play project from 11 sites in seven Canadian provinces were tested using the CAPL protocol.ResultsAmong boys and girls, the RAE was significantly associated with two and three of the four domain scores, respectively, after controlling for covariates. However, effect sizes were negligible for the comparisons between quarters of the year and physical literacy domains and overall scores. For the main effect of the relative age, boys and girls born in the first three months of the year were taller (F(3, 4074) = 57.0, p < 0.001, ƒ2 = 0.04 and F(3, 4107) = 58.4, p < 0.001, ƒ2 = 0.04, respectively) and demonstrated greater muscular strength (F(3, 4037) = 29.2, p < 0.001, ƒ2 = 0.02 and F(3, 4077) = 25.1, p < 0.001, ƒ2 = 0.02, respectively) compared with those born later in the same year.ConclusionsCollectively, our results suggest that the RAE bias is mainly negligible with regard to the domain scores and overall CAPL scores in this large sample of children.

Correction to: Analysis of the SRISK measure and its application to the Canadian banking and insurance industries

In the original publication, Table 6 was incorrect. The correct version of Table 6 is given for your reading. The original article has been corrected

International monetary policy transmission through banks in small open economies

This paper studies the international transmission of monetary policy through banks in small open economies using the examples of Switzerland and Canada. We assess the inward transmission of foreign monetary policy for Switzerland and the outward transmission of domestic monetary policy for Canada. In both country cases, we focus on the international bank lending and the international portfolio channel, which make opposing predictions about how monetary policy transmits internationally through banks. Our results on the inward transmission of foreign monetary policy through banks in Switzerland are consistent with a role for the international portfolio channel, but we find no evidence for the traditional international bank lending channel. The results on the outward transmission of domestic monetary policy in Canada suggest that foreign lending by Canadian banks is affected through both channels, which work as predicted and largely balance each other.

캐나다의 은행업 규제와 그 시사점에 관한 연구

캐나다의 은행업 규제와 그 시사점에 관한 연구

캐나다법제상 은행설립의 절차 및 그 시사점

2007년부터 시작된 미국발 금융위기가 10년이 지났음에도 불구하고 여전히 전 세계를 어렵게 하고 있다. 그럼에도 불구하고 캐나다는 미국에 접해 있지만 금융위기에서 비교적 자유로운 상태에 있다. 더욱이 우리나라와는 경제규모도 비슷하고 금융위기의 2차감염지라는 점에서도 동일하다. 이런 이유로 캐나다의 금융시스템에 대한 금융법적인 연구는 의의가 있을 것이다. 이에 따라 본 연구는 금융 중 은행업의 설립절차에 집중해서 금융법적으로 검토한 후 우리법제를 위한 시사점의 도출을 다음과 같이 시도하였다. 먼저 캐나다에서 은행업을 하려면 3단계(사전신청단계, 인가신청단계 및 은행업개시명령서 발부단계)를 거쳐야 하나 우리는 예비인가와 본인가로 구성되어 차이가 있다. 그러나 중복된 절차가 아닌지 재검토가 필요하다. 둘째 캐나다의 경우 은행업의 인가는 재무장관이 하고 은행업의 감독은 금융기관감독청(OSFI)이 담당하는 이원적인 구조를 취하고 있어 단일의 금융위원회(FSC)가 통합적으로 규제하는 우리와는 다르다. 금융규제 및 감독의 신속성이라는 측면에서는 우리가 나은 반면 집중으로 비대화가 되어 이로 인한 부작용이 우려되기 때문에 이에 대한 보완작업은 요구된다. 셋째 캐나다에 비해 우리나라의 은행 최저자본금은 약 25배나 많고 또한 최저자본금의 세계적인 추세에도 역행하고 있어 재검토가 필요하다. 넷째 적기시정조치가 중요하지만 그 적시성이 확보되어야만 제기능이 발휘되기 때문에 적시성의 예외규정을 구체화할 필요가 있다. 끝으로 내부통제장치는 캐나다와 우리가 마련되어 있으나 이의 작동이 잘 되는지를 감독하는 준법감시인은 우리만 규정되어 있어 상대적으로 나은 법제라고 할 수 있다. 그러나 준법감시인은 해당 은행에서 임면되기 때문에 자신을 임명한 그 은행을 제대로 감시할 수 있을지는 의문으로 남는다. 이 역시 검토대상이다.

Does Regulatory Regime Matter for Bank Risk Taking? A Comparative Analysis of US and Canada

The banking structure in the US is less concentrated, more competitive and less restrictive, whereas that of Canada is more concentrated, less competitive, and more restrictive. In the wake of the worst financial crisis in 2008, most US banks were bailed out while Canadian banks sailed through the crisis relatively unscathed. We examine the risk taking behavior of banks in the US and Canada prior to the recent financial crisis and find that Canadian banks had lower risk than their US counterparts over the study period. Further analysis shows that entry restrictions, which create concentrated banking structure, restrictions relating to capital, liquidity and activities, and strong supervisory power and discipline positively related to the z-score, suggesting that these factors constrain excessive risk taking by Canadian banks. We also decompose the z–score into its components and re-estimate our baseline regression with the view to identifying the source of the risk. We find that entry restrictions (and higher concentration) generate higher profits and lower variability of asset returns for Canadian bank whiles restrictions on activities reduce profitability and increases variability in asset return; however, the former seems to overwhelm the effect of asset restriction, given the lower risk that we observe for the Canadian banks. The less concentrated but competitive banking structure in the US is associated with higher bank risk taking.

Demographics and the demand for currency

I use data from the Bank of Canada’s Bank Note Distribution System and exploit a natural experiment offered by the timing of Easter in the Gregorian calendar to analyse the effects of demographic change for bank note demand by financial institutions from the Bank of Canada. I find that the main drivers of low-denomination bank note demand are merchants. Merchants and the youngest age group, aged 15–24, are also a significant source of demand for twenty-dollar bank notes and for the total dollar value of withdrawals. In contrast, increases in the demographic age groups 25–54 and 55 plus tend to lower bank note withdrawals. Finally, I find no evidence that employment status is related to bank note demand, but that there is a difference between the bank note demand of men aged 15–24 and women aged 15–24: increases in the share of women aged 15–24 lead to increases in bank note demand.

Promoting frontline employee customer orientation in China: a replication and a comparison

PurposeThe purpose of this paper is to test the influence of managerial coaching on frontline employee customer orientation, sales orientation and performance in a Chinese context. Further to this first goal, the authors also aim to compare these results with those obtained with a sample of Canadian bank employees in order to understand to what extent differences between Eastern and Western cultures affect business practices and employee responses in both environments.Design/methodology/approachThis paper replicates a study from 2014 that used a sample of Canadian financial advisors to test the impact of managerial coaching on customer orientation, sales orientation and performance. In this new study, 185 frontline employees from a large insurance company in Chongqing (China) answered a paper-and-pencil questionnaire in Mandarin providing information about the coaching received from their managers, their own customer and sales orientation, as well as performance. Data were analyzed using structural equation modeling in AMOS as well as multigroup confirmatory factor analysis to evaluate cross-cultural differences.FindingsThe authors found that for the Chinese respondents managerial coaching is positively related to employee performance both directly and through the mediation effect of customer orientation. The authors found no support for the mediation of sales orientation between coaching and performance. These results suggest that managerial coaching might be a good strategy to promote relational behaviors in frontline employees, but not to reduce manipulative behaviors. The authors also found that these results are statistically equivalent for Chinese and Canadian respondents, suggesting that cultural differences are less prevalent than expected in this business sector.Research limitations/implicationsThe study makes several contributions to research. First, it suggests that managerial coaching can help employees develop their customer orientation–a central construct for commercial organizations working under a relational marketing approach. Second, it presents one of the first studies that evaluate the efficiency of managerial coaching in an Eastern country. And finally, results underline the equivalence of results for Eastern (China) and Western (Canada) respondents suggesting that in a global environment (like the financial industry) the business logic guiding the development of good customer relationships and employee customer-oriented behaviors prevails over potential cultural differences and makes leader and employee behaviors more similar and comparable across different regions in the world.Practical implicationsFirst, the use of managerial coaching seems to increase frontline employee relational behaviors, like customer orientation. Accordingly, managerial coaching seems to be a link that can help financial institutions bridge the formulation of a marketing relational strategy in the boardroom and the implementation of such a strategy at the customer interface between frontline employees and customers. Second, given the equivalence of results between the Canadian and the Chinese sample, it seems that the similarities between business models and business logics within the financial services sector are more important—and supersede—the potential cross-cultural differences between Eastern and Western countries.Originality/valueThe study makes a contribution to the limited literature on the use of managerial coaching in financial institutions to increase frontline employee relational behaviors. At the same time, it presents one of the few cross-cultural studies comparing results obtained from Chinese and Canadian respondents.

Changes in monetary regimes and the identification of monetary policy shocks: Narrative evidence from Canada

Using narrative evidence with a novel database of real-time data and forecasts from the Bank of Canada’s staff projections (1974–2015), we construct a new measure of monetary policy shocks and estimate the effects of monetary policy in Canada. We show it is crucial to account for the break in the conduct of monetary policy caused by the announcement of inflation targeting in 1991. A 100-basis-point increase in our new shock series leads to a 1.0 percent peak decrease in real GDP and a 0.5 percent fall in the price level, while not accounting for the break leads to a persistent decrease in GDP and a price puzzle. Albeit the change in monetary regime, the effects of monetary policy have not changed much before and after IT.

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 (in Rev Financ Stud 30:48–79, 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. We also demonstrate the importance of careful analysis of accounting standards when specifying the prudential capital ratio used in SRISK methodology. Based on the proposed adjustments to SRISK, we assess the systemic risk of the Canadian banking and insurance industries. It is shown that in its current implementation, the SRISK methodology substantially overestimates the systemic risk of Canadian insurance companies.

Faulty Transmissions: Howe Demographics Affect Monetary Policy in Canada

Over the past decade, inflation in many countries has been tepid, despite rock-bottom interest rates and different forms of unconventional stimulative monetary policy, including quantitative easing. For its part, Canada has averaged 1.5 percent inflation over this period, below the 2 percent target. This Commentary asks what role demographics, in particular an aging population, has on monetary policy effectiveness, looked at through the lens of its impact on inflation and unemployment. This Commentary first evaluates the impact of Canadian monetary policy effectiveness on economic variables from the mid-1980s onward and then looks at the impact of an aging population on this effectiveness in the years since the Bank of Canada became an inflation-targeting central bank. We improve on previous work on Canadian monetary policy effectiveness by using monetary policy shocks that remove the puzzling results found in standard empirical setups. Furthermore, since the old-age dependency ratio changes only slowly over time, we use a panel data set that gives us the necessary variation. This allows us to estimate the impact of aging in Canada more precisely. Results are ambiguous on monetary policy’s effectiveness over the last 30 years. In part, this could be due to the fact that inflation expectations have become better anchored at the 2 percent target. This would mean that even if the Bank has to work harder to affect inflation, inflation is at least more stable in the face of real economic shocks. Our follow-up question – and, really, the central question of this Commentary – is what is the impact of demographics on this record of monetary policy effectiveness? What we find is that Canada’s aging population has acted as a drag on and is likely a leading cause of the systematic undershooting of inflation we have seen since the financial crisis. We also find that the interest rate and credit channels help explain this result. Specifically, an aging population that takes on less debt is less sensitive to changes in the interest rate. This means that meeting the Bank of Canada’s inflation target will require more significant changes to the overnight rate target and, in the case of expansionary monetary policy, will be made more difficult by a lower neutral rate of interest, which may result in a quicker move to unconventional monetary policy. The results in this Commentary should help the Bank of Canada adjust its analysis accordingly.

Understanding the Volatility of the Canadian Exchange Rate

In this Commentary, we document the nature of the Bank of Canada’s current monetary policy regime by focusing on the following questions: what are the historical determinants of the Canadian–US dollar nominal exchange rate, and can they be used in real-time forecasting applications? We find that the current real exchange rate is more useful than commodity prices for forecasting changes in the nominal exchange rate. In fact, short-run forecasts based on the real exchange rate are as good as random-walk forecasts according to which the future exchange rate is expected to be the same as today’s. Strikingly, medium- and long-run forecasts based on the real exchange rate are superior to random-walk forecasts. We argue that these findings reflect the fact Bank of Canada and the U.S. Federal Reserve System follow similar inflation-targeting regimes and neither actively manages exchange rates. A fundamental question is whether Canadian policymakers are satisfied with the current inflation targeting regime. A cost of the current regime is that it allows for very volatile nominal and real exchange rates. A benefit is that consumers and firms can avoid many of the changes in prices and wages that would be required if the nominal exchange rate did not adjust in a flexible manner. In this Commentary, we take no stand on the merits of the current regime. Instead, we highlight the tradeoffs that policymakers face. Evaluating the costs and benefits of those tradeoffs should play an important role in the process leading to the Bank of Canada’s next five-year agreement with the government.

Medicine, Body Fluid and Food: The Regulation of Human Donor Milk in Canada.

The use of peer-to-peer online networks to access both pasteurized and unpasteurized human donor milk is increasing in Canada. In the absence of a mother's own milk, donor milk is the next best nutrition available for all infants in need of supplementation. Limited supply and the cost of pasteurized milk puts it out of reach for many. Although milk banks in Canada all operate on a non-profit basis, there is a lack of regulatory safeguards regarding for-profit operations and private milk exchange. This paper describes regulation of human donor milk and identifies gaps putting families at risk.

Market Power and Efficiency in Banking: The Case of USA and Canada

The banking markets of USA and Canada have gone through the Global Financial Crisis (GFC) and many other changes during the period 2003-15. The USA banking market was impacted by the Global Financial Crisis (GFC), and several mergers occurred, while the extent of the GFC’s impact on Canada was much less severe, and there was no major merger and acquisition activity. This study compares the impact of changing market concentration and power on the efficiency of the major banks in both the countries, using stochastic frontier analysis. A significant impact of GFC is observed on market power, concentration, and bank efficiency during the 2007-09 period. Overall, Canadian banks posted better efficiency scores than their US counterparts. We find that market power had a positive impact and market concentration a negative impact on bank efficiency. Market power is used to lower the cost of funds and increase the price of loans to achieve an optimal level of performance (from the banks’ perspective). The paper contributes by integrating competition measures into the study of efficiency, demonstrating that inclusion of efficiency allows a more precise estimation of the frontier. The paper also has implications for the regulation of the banking sector, particularly with regard to competition.

Does the Information Content of Central Bank Speeches Impact on the Level of Exchange Rate? A Comparative Study of Canadian and Australian Central Bank Communications

Traditionally, central banks have used direct intervention in currency markets when the exchange rate has moved away from equilibrium or when the volatility has been excessive and the literature on the effects of indirect intervention is sparse. We examine whether indirect intervention has any impact on the exchange rate levels by examining the central bank verbal communications in Australia and Canada. We find evidence that the Bank of Canada’s (BOC’s) speeches reduce the mean exchange rate returns but not the Reserve Bank of Australia’s (RBA’s) speeches. Our results show that the socio-economic similarities between countries do not guarantee a similar impact of indirect intervention.

The BoC-BoE Sovereign Default Database Revisited: What's New in 2018?

Until recently, there have been few efforts to systematically measure and aggregate the nominal value of the different types of sovereign government debt in default. To help fill this gap, the Bank of Canada’s Credit Rating Assessment Group (CRAG) has developed a comprehensive database of sovereign defaults posted on the Bank of Canada’s website that now is updated in partnership with the Bank of England. Our database draws on previously published data sets compiled by various public and private sector sources. It combines elements of these, together with new information, to develop estimates of stocks of government obligations in default, including bonds and other marketable securities, bank loans, and official loans in default, valued in US dollars, for the years 1960 to 2017 on both a country-by-country and a global basis. This update of CRAG’s database, and future updates, will be useful to researchers analyzing the economic and financial effects of individual sovereign defaults and, importantly, the impact on global financial stability of episodes involving multiple sovereign defaults.

Navigating Turbulence: Canadian Monetary Policy Since 2004

The Bank of Canada should restore the important role of tracking the money supply as a predictor of future inflation and economic performance, according to a major new book on the conduct of monetary policy from the C.D. Howe Institute. In “Navigating Turbulence: Canadian Monetary Policy Since 2004,” authors Steve Ambler and Jeremy Kronick assess the BoC’s policies from 2004, through the turbulence of the 2008/09 recession, the recovery and up to the current period. Overall, they give the Bank high marks for its stewardship. However, the Bank faces key new challenges posed by the current low-interest-rate, low-inflation environment that require response, according to the authors.

Private Banking Advisers at Bcb Edmonton (a)

A bank manager is thinking about how to manage the new private banking advisers (PBA) practice in her region. For that she needs to determine how many PBAs she needs, where they should be located, and to which branches each of them should be assigned. This three-case series exposes students to the underlying sequence of analytical tasks, which culminate in solving an integer-programming optimization model—a main tool of prescriptive analytics. The assignment part of the problem (e.g., given the home-base locations of advisers, how should branches be assigned) is solvable in Excel, but the higher-level problem of where the PBAs should be located is beyond the scale of the built-in Excel solver. The case's teaching note recommends the Gurobi solver (which is available to students for free), that is controlled through a Python interface (which is on track to becoming world's most popular programming language). The (A) case presents the problem and data they are. The (B) case focuses on the descriptive analytics task of visualizing the branch locations to gain intuition. Tableau software is used with default and advanced mapping functionality. The (C) case focuses on the predictive analytics task of estimating travel times between branches. Python code for that is provided, which repeatedly calls Google Maps to obtain the travel times—a task known as the application programming interface (API). By following the A-B-C sequence, the students will have all they need to build the optimization model. With A-B, they have a lot of intuition but still need to estimate travel times. With just the A case, the situation is mostly open ended: it is up to the students to decide what to do, in addition to how to do it.The case is suitable for advanced undergraduate or MBA electives on analytics, or for fast-growing Masters in Analytics programs. Excerpt UVA-QA-0905 Dec. 10, 2018 Private Banking Advisers at BCB Edmonton (A) “I think we need six,” thought Wallace, looking at the data of the Edmonton area branches of the Big Canadian Bank (BCB) (Exhibit 1). “But will the six work? And could five work?” she wondered. “Five would certainly be better than six. Or maybe even four?” Wallace was referring to an important pilot that BCB was planning to run first in Edmonton before rolling out nationally and internationally: Private Banking Advisers (PBA) practice. She needed to decide how many PBAs the Edmonton area would need. Canadian Banking, “Big Five,” and BCB . . .