Changes to certain Bank of Canada operational procedures relating to the Large Value Transfer System and the use of purchases and sales of bankers' acceptances in managing the Bank of Canada's balance sheet
The Bank of Canada is changing two of its operational procedures relating to the Large Value Transfer System (LVTS), effective 2 April 2001.
First, the Bank will discontinue the second round of Special Purchase and Resale Agreements or Sale and Repurchase Agreements except in extraordinary circumstances. The need for a second round, which was initiated in September 1999 to reinforce the Bank's objective for the overnight interest rate, has diminished markedly.
Second, the Bank of Canada will target a minimum daily level of settlement balances of $50 million (instead of zero) on a trial basis to reduce frictions in the system. The Bank will continue to target a higher level of balances on days when overnight funding is expected to be tight. As has been the recent practice, the target balance will be announced by 4:30 p.m. the previous day on the Bank of Canada's Web site.
The Bank of Canada also announced today that it will implement a program of purchases and sales of bankers' acceptances to add flexibility to the management of its balance sheet. These operations have no monetary policy significance. This program will reduce the reliance on temporary swaps of foreign-denominated securities between the Government of Canada's Exchange Fund Account and the Bank of Canada. The amount and timing of bankers' acceptance transactions will be tied to the projected profile of the Bank's balance sheet. Based on current trends, the size of the portfolio is expected to range between zero and $2 billion. These transactions will be undertaken through Primary Dealers for Government of Canada treasury bills and will be limited to bankers' acceptances that mature within six months. The operations will be managed with due attention to market conditions and prudent risk management. Bankers' acceptances acquired through these operations will be reported on the Bank's balance sheet, which is published each Friday in the Weekly Financial Statistics and in the weekly series B113725. The net amount of daily transactions of bankers' acceptances will be posted in the Rates & Statistics section of the Bank's Web site.
For more information contact:
Marc Larson 613 782-7836
Wally Speckert 613 782-8102
Financial Markets Department