Following a regular review of the Bank’s policy in relation to Assets Eligible as Collateral under the Bank of Canada’s Standing Liquidity Facility (SLF), the Bank is planning to add certain Canadian-dollar denominated term asset-backed securities (ABS), including those backed by residential mortgages, to the list of eligible collateral, effective 31 March 2015. Eligibility will be subject to the following conditions:

  • The security must be issued through a public offering under a prospectus.
  • Continuous disclosure of information about the ABS program and the underlying assets must be readily available.
  • Only securities from programs of sufficiently high quality as determined by the Bank of Canada will be accepted. The Bank will consider a number of factors in its assessment, including but not limited to: the type of underlying assets, the structure of the program and bankruptcy remoteness of the assets, the number and geographical distribution of the obligors, the availability of information from credit rating agencies, the transparency of the program, and the credit quality of the sponsor and other significant service providers. The Bank reserves the right to subsequently decide that a security is no longer eligible even if it has initially been accepted.  
  • Only the most senior tranche of a program meeting the Bank’s criteria will be accepted.
  • The program must not contain any actual or potential exposure to structured or synthetic products.1
  • The security must not be backed by commercial mortgages.
  • The pledgorof the collateral cannot be the sponsor nor the financial services agent, administrative agent, or similar service provider of the ABS it is pledging.
  • A market price acceptable to the Bank must be available for the security.
  • The security must be denominated in Canadian Dollars and delivered via CDSX.
  • The combined amount of term ABS and ABCP sponsored by a single institution pledged by an LVTS participant cannot be more than 5 per cent of the total value of all the collateral pledged by that participant.
  • The term ABS will count towards the 20 per cent overall concentration limit for private sector and municipal securities, as does ABCP, but not towards the 10 per cent limit for LVTS participant securities.  
  • Pledgors will be required to notify the Bank of any material changes to the term ABS or its underlying assets as soon as this information becomes publicly available.
  • Other relevant conditions as stated in the Bank’s policy relating to Assets Eligible as Collateral under the Bank of Canada’s Standing Liquidity Facility will apply (e.g. no embedded option or right of conversion into equity securities, minimum principal amount of $1 million, etc.).2
  • The Bank will require up to two weeks to complete the eligibility review of an ABS.
  • The haircuts to be applied are as follows:

 

Term to Maturity3

Collateral Type

Up to 1 year

>1-3 years

>3-5 years

>5-10 years

>10-35 years

>35 years

High Quality Asset-Backed Securities

7.5%

8.0%

9.0%

12.0%

15.0%

17.0%

Prior to making ABS eligible, the Bank would welcome any comments on its intention to accept this asset class subject to the conditions described above. Any comments can be e-mailed by 28 February 2015 to .

For further information please contact:


Assistant Director
Financial Markets Department
Bank of Canada
613 782-8046


Bank of Canada
613 782-8782