Canada: Financial Sector Assessment Program-Technical Note-Systemic Liquidity

IMF Staff Country Reports, January 24, 2020

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Review evaluated the Bank of Canada’s (BOC’s) operational framework and its ability to manage liquidity conditions in normal times and in times of stress.
Review assessed the functioning and resilience of key funding markets in Canada.
Focus: Financial Safety Net and Crisis Management; systemic liquidity issues.

The BOC’s framework for market operations and liquidity provision in normal times is comprehensive and well-articulated.
System-wide liquidity conditions are stable.
Market rates are closely aligned with the announced policy rate.
The BOC has many channels to provide liquidity against a broad range of collateral.
Foreign exchange markets appear liquid.
The resilience of foreign exchange markets is increasingly important given the growing reliance on external, foreign-currency funding.

Contingency plans for market-wide liquidity support need further development.
Specific gaps noted in contingency planning for:
- Intervention in securities markets.
- Provision of foreign-currency liquidity.
Such contingency plans should be developed further and tested.

Develop and test contingency plans for market-wide liquidity support, including:
- Frameworks for securities market intervention.
- Arrangements for provision of foreign-currency liquidity.
Maintain and leverage the BOC’s multiple channels to provide liquidity against a broad range of collateral to preserve market functioning.