Given improved conditions in funding markets, the Bank of Canada is announcing that, starting 2 February 2010, its temporary measure of allowing Large Value Transfer System (LVTS) participants to assign their non-mortgage loan portfolios as eligible collateral for LVTS and Standing Liquidity Facility (SLF) purposes will be gradually reduced from 100 per cent to 20 per cent of each participant's total pledged collateral. As a result, a new limit of 80 per cent of total collateral pledged will come into effect as of 2 February 2010. It will then be reduced to 50 per cent as of 1 March 2010, and to 20 per cent as of 1 April 2010.

As part of its ongoing review of the collateral policy for the SLF, the Bank has determined that there are efficiencies associated with limited use of the non-mortgage loan portfolio for LVTS and SLF collateral purposes on a regular basis. As such, after the transition period, the limit of 20 per cent of total collateral pledged will continue on a permanent basis.

Under the new policy, the Bank will consider temporarily lifting this 20 per cent limit in exceptional cases, for a very limited period, to accommodate the liquidity needs of individual LVTS participants when there are extremely large payment flows. Written requests for an increase in the limit must be submitted to the Chief of the Financial Markets Department at least 48 hours in advance.

These changes have no implications for the stance of monetary policy.

The Bank of Canada continues to closely monitor global market developments and remains committed to providing liquidity, as required, to support the stability of the Canadian financial system and the functioning of financial markets.

Background:
Acceptance of the non-mortgage loan portfolio as LVTS and SLF collateral was announced on 14 October 2008 as a temporary measure to provide LVTS participants with greater flexibility in managing their collateral, which in turn would support institutions' efforts to efficiently generate liquidity. The initial eligibility period was to expire on 2 November 2009. On 25 June 2009, the Bank announced that it would extend this eligibility period until at least 1 February 2010.

The current list of securities eligible as collateral under the Bank of Canada's Standing Liquidity Facility can be found on the Bank's website.

For further information, please contact:
Jeremy Harrison
613 782-8782