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Change to Bank of Canada Interest Rate Spread for Items Cleared through the Automated Clearing Settlement System (ACSS)

Effective 2 December 2002, the interest rate spread for overdraft loans and positive balances arising from ACSS settlement will be reduced to 300 basis points from 350 basis points.

The Canadian Payments Association introduced the Large Value Transfer System, an electronic system for the transfer of payments, on 4 February 1999. Virtually all of the value of public sector payment flows and most payments related to wholesale market transactions now move through the LVTS.

However, paper-based payment items, such as cheques, continue to be cleared through the Automated Clearing Settlement System. The amounts due to and due from ACSS direct participants are settled on the books of the Bank of Canada, with the Bank extending collateralized overdraft loans at the upper limit of the interest rate spread and paying interest on deposits at the lower limit. The rate spread for these ACSS balances, which are settled on a retroactive basis, was initially 550 basis points; i.e., 275 basis points above and below the target for the overnight interest rate. On 1 April 1999, following significant migration of payments from the ACSS to the LVTS, this rate spread was narrowed to 350 basis points: 175 basis points above and below the target rate.

The Governor has taken the decision not to designate the ACSS under the Payment Clearing and Settlement Act. In conjunction with this decision, the Bank will reduce the interest rate spread by another 50 basis points to 300 basis points, effective 2 December. Thus, at the end of ACSS settlement, the Bank will extend collateralized overdraft loans to settle positions in the ACSS at the target rate plus 150 basis points and pay the target rate less 150 basis points on deposits arising from ACSS settlement.

Further information on the Bank of Canada's target rate can be found on the Bank of Canada's Web site at See also "A Primer on the Implementation of Monetary Policy in the LVTS Environment."


Donna Howard
Phone: 782-8474

Content Type(s): Press, Market notices