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

Gabriel Bruneau, Javier Ojea-Ferreiro, Andrew Plummer, Marie-Christine Tremblay and Aidan Witts

Latin American Journal of Central Banking (previously Monetaria), 2025, vol. 6, issue 3

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.

Keywords: Climate change; Financial stability; Financial institutions; Financial markets; Economic models (search for similar items in EconPapers)
JEL-codes: C63 G01 G10 G20 Q54 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:lajcba:v:6:y:2025:i:3:s2666143825000018

DOI: 10.1016/j.latcb.2025.100163

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