Changes to Margin Requirements for the Bank of Canada’s Standing Liquidity Facility (SLF)
As part of the ongoing review of the collateral policy related to the Bank of Canada’s Standing Liquidity Facility (SLF), the Bank has revised the margin requirements applied to certain securities accepted as SLF collateral. In setting its policy for the Assets Eligible as Collateral under the Bank of Canada’s Standing Liquidity Facility and the associated eligibility criteria and applicable conditions, the Bank manages its own risks and also considers the implications for market functioning and the broader impacts on the financial system. In determining margin requirements, the Bank takes a “through-the-cycle” approach, looking at historical pricing volatility and liquidity over a full market cycle.
The changes to the margin requirements announced today are the following:
- Increased haircuts for securities at longer maturities that are issued or guaranteed by the Government of Canada, issued by the United States Treasury, issued or guaranteed by a provincial government, or issued by a municipality.
- A separate category for National Housing Act Mortgage-Backed Securities (NHA MBS), with the haircuts set at 1 percentage point above that applicable to other Government of Canada guaranteed securities (including Canada Mortgage Bonds) of equivalent maturity.
- The removal of the adjustment (or prorating) applied to haircuts for securities with a remaining maturity of up to one year and the introduction of a new maturity bucket for up to three months.
- The application of the same haircut to all securities within a given asset class and maturity bucket, provided the security meets the minimum rating requirement. This change applies to securities issued by a municipal government, bankers’ acceptances, promissory notes, commercial paper, covered bonds, and corporate and foreign-issuer bonds.
The updated list of Assets Eligible as Collateral under the Bank of Canada’s Standing Liquidity Facility and related margin requirements reflect the above changes. Notwithstanding the margin requirements listed, the Bank retains the right to apply additional haircuts for securities without a reliable market price.
The revised margin requirements will be effective on 16 June 2015.
For further information please contact:
Financial Markets Department
Bank of Canada
Bank of Canada