The Bank of Canada is ready to step in if the global financial crisis causes ‘spillovers’ to banks here

The Bank of Canada is ready to defend Canadian banks from a global financial meltdown if the current banking crisis in the US and Europe spills into Canada, but the central bank does not think they will have to step in.

Speaking on Wednesday at the National Bank Financial Services Conference, Bank of Canada deputy governor Toni Gravelle declared that the bank was “ready to act in the event of severe market-wide stress and provide liquidity support to the financial system.”

He specifically referred to the near-collapse of the British pension system last September following disruptive tax cuts by then Prime Minister Liz Truss, and said the Bank of Canada would be better prepared for such a crisis, allowing it to offer liquidity not just to banks , but pension funds and others facing financial stress.

Learning from pandemic crashes

Gravelle said the central bank had learned many lessons from the COVID-19 crisis and would do things more efficiently if a similar major crisis arose and markets stopped functioning.

In that light, the bank released a fresh discussion paper about how the Bank of Canada responded to “an unparalleled level of financial market disruption” when the pandemic virtually halted the entire Canadian economy.

After the fact, many critics complained that the bank had acted too forcefully, cutting interest rates and promising they would stay low, but analysis by central bankers around the world showed how close the economic system was to crumbling.

“Investors sought liquidity by selling financial assets and drawing down loans and credit lines,” says a summary of the new report.

“The speed, scale and one-way nature of these transactions caused an almost complete breakdown of market functioning.”

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As well as cutting interest rates, the central bank pumped money into the economy by buying not just Government of Canada bonds but other assets, pouring money into the economy to prevent a systemic financial breakdown.

Gravelle, one of the bank’s top specialists in managing market stability, what you might call the wonkier side of central banking, said that while the bank stands ready to pull out the stops and defend the financial system using its extraordinary tools, “the bar is very high” for the bank to do so.

Credit Suisse a ‘wake up call’

Gravelle said that while many at the Bank of Canada found the collapse of Silicon Valley Bank earlier this month worrying, “more importantly the Credit Suisse takeover by UBS was a bit more of a wake up call,” leading officials in his financial stability division to bush off their contingency plans.

In a post-speech question and answer session with National Bank’s leading economist Warren Lovely, Gravelle was quizzed on how seriously we should take the danger to Canada and its banks.

The logo of Swiss bank Credit Suisse is seen in front of a branch office in Bern, Switzerland November 29, 2022.
While the collapse of Silicon Valley Bank came as a shock, it was the forced takeover of Credit Suisse that caused Canadian regulators to dust off their contingency plans. (Arnd Wiegmann/Reuters)

“You mentioned that you are monitoring the current situation closely, you’re ready to act if necessary, we’re not immune to spillovers,” Lovely said. “So can you give us some sense of how nervous are you right now?”

Its track record may mean not all Canadians will trust the assessment of the Bank of Canada, but Gravelle’s response was categorically reassuring.

“The Canadian banking sector is in a quite different place than the regional banks in the US,” he said. “But just in terms of the current crisis, our current assessment, although we are keeping a close eye, we don’t feel anywhere close to concerned in terms of financial system stress.”

While media reports focus mostly on interest rates, central banking has a lot of moving parts and those who still think the Bank of Canada’s job is easy and they could do better would be wise to listen to Gravelle’s speech and discussion first.

Avoiding moral hazard

Gravelle also said that any buying of assets to protect financial institutions would be formulated to avoid moral hazard, “when investors or market players feel they can take unusual risks without bearing the consequences if things go wrong.”

“In other words, they come to expect that since the central bank stepped in once, it will step in again — at any sign of market stress, even a modest one,” he said.

To mitigate the effects of moral hazard, the central bank will limit its actions to the most extreme cases, meaning that investors could suffer significant losses before the bank steps in. It will also make bailed-out investors buy back the securities from the Bank of Canada as soon as the crisis is over. powergaming88 powergaming88 powergaming88 powergaming88 powergaming88 powergaming88 powergaming88 powergaming88 slot zeus nolimit city sv388 slot jepang scatter hitam slot thailand link slot thailand 777 slot powergaming88 slot luar negeri slot gacor maxwin slot gacor hari ini slot gacor terbaru mahjong ways 2 slot thailand jp slot slot bni slot bri slot bsi slot danamon slot gopay slot server korea slot malaysia slot amerika slot rusia fan tan monopoly live lightning roulette mega ball sweet bonanza candyland mega sic bo mega baccarat andar bahar sbobet88 ktm303 slot dubai slot qris powergaming88 Slot Thailand Slot Zeus Pg Soft Starlight Princess Slot Gacor Maxwin Joker123 Sv388 Slot Thailand Slot Thailand Slot Qris slot thailand joker123 mahjong ways 2 888slot slot thailand slot88 sweet bonanza slot jepang slot thailand slot mahjong ways slot qris slot deposit dana slot dana nolimit city slot thailand sv388 slot888 slot kamboja Slot Thailand Starlight Princess Mahjong Ways 2 Slot Maxwin slot thailand akun pro kamboja slot filipina joker123 slot zeus slot88 slot thailand slot mahjong slot megaways NEW SLOT POLA GACOR Slot Server Luar jp slot slot ganas crazy time live slot qris slot akurat slot bca slot bni qris slot zeus server thailand server hongkong slot ovo slot gopay slot linkaja joker123 nolimit city sv388 starlight princess mahjong ways pg slot slot zeus sv388 idn slot slot server thailand slot thailand ladangtoto nolimit city koi gate sicbo online roulette online lice casino live22 baccarat online nolimit city slot ovo slot gopay pragmati play starlight princess slot pg soft slot mahjong slot zeus sv388 digmaan slot mania slot zeus slot thailand server thailand ying77 slot thailand judi bola live casino sv388 pg soft slot dana mahjong ways slot mania slot x500 ladangtoto slot server kamboja digmaan digmaan slot88 scv388 sabung ayam online slot live casino sicbo online live casino online slot thailand ladangtoto sv388 ladangtoto powergaming88 66kbet powergaming88 slot thailand ladangtoto slot thailand server thailand slot thailand slot thailand slot thailand slot gacor ladangtoto2 ying77 bet server thailand slot thailand ying77 slot88 ladangtoto ladangtoto slot maxwin sv388 sv388 slot gacor 66k bet slot dana sabung ayam inline slot mahjong slot toto slot server thailand slot gacor slot server thailand slot gacor slot thailand situs slot wwg slot slot daftar judi slot online indonesia slot gacor slot mawin slot gacor slot thailand slot gacor slot gacor demo slot pragmatic sv388 slot88 pgsoft Daftar Judi Slot Online Indonesia Paling Gacor di Indonesia Daftar Situs Judi Slot Online SLOT88 lucky neko slot gacor slot88 slot kakek slot maxwin slot thailand Slot Mahjong Ways 2 Mudah Jackpot Paus di PG Soft Hari ini 2023 Lucky Neko Situs Slot Gacor Pgsoft Hari Ini SITUS SABUNG AYAM SV388 ONLINE DAFTAR LINK LOGIN APK AGEN SV388
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