Bank of Canada announces new measures to support financial markets

After last week’s second emergency interest rate cut, the Bank of Canada announced further measures aimed at stabilizing financial markets amid the coronavirus outbreak on Monday.

“To that end, the Bank is announcing that it will broaden eligible collateral for its term repo facility to include the full range of collateral eligible under the Standing Liquidity Facility, with the exception of the non-mortgage loan portfolio,” said the Bank of Canada in a release.

“This expansion of eligible collateral will provide support to funding conditions for financial institutions by providing a backstop to regular private funding.”

Repos are a form of short-term loan. The Bank of Canada says it can also use other measures, like buying Canada Mortgage Bonds (CMB) on the secondary market.

Canada’s central bank says it’s taking steps to ensure financial markets have sufficient liquidity.

“The Bank of Canada is taking concerted action to support the Canadian economy during this period of economic stress,” said the Bank of Canada.

“Our measures will help ensure that financial institutions can continue to extend credit to both households and businesses.”

The Bank of Canada also announced measures to provide liquidity for Payments Canada.

“To give institutions greater flexibility in managing their collateral, effective 17 March 2020, the Bank of Canada will allow Large Value Transfer System (LVTS) participants to temporarily assign an additional 20 percent of their NMLP (non-mortgage loan portfolio),” said the Bank of Canada.

“This brings the total allowable amount to 40 percent of their total pledged collateral.”

The Bank of Canada also says minimum daily level of settlement balances will rise from $250 million to $1,000 million.

Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.

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