Paper examines relationship between monetary policy and bank funding crises

Despite being the first line of defence against bank funding crises, regulatory tools are insufficient to control such risks, a working paper published by the Bank of Canada has said.

Examining the impact of variations in monetary policy on the probability of bank runs and on the severity of consequent output losses, Malik Shukayev and Alexander Ueberfeldt find "price adjustment frictions" and "a state-dependent risk of financial crisis" create the possibility of a policy trade-off between price