Bankers’ Acceptances (BAs) will no longer be issued by the major Canadian banks after the cessation of the Canadian Dollar Offered Rate’s (CDOR) publication in June 2024. BAs play a major role in Canadian money markets, where they represent a fifth of outstanding assets, and they are important to CDOR submitting banks, which rely on BA rates as an input for determining their daily contributions to the CDOR panel. The CFIF BA Transition Virtual Network (BATVN) has therefore been working closely with key stakeholders to ensure the decline of BAs follows an orderly process in order to limit any negative impacts to market functioning. At CFIF’s September2023 meeting, the BATVN presented a proposal for how such an orderly wind down could be achieved.
Based on the findings of the BATVN, CFIF recommends that Canadian banks begin tapering off their BA issuance starting in November 2023 to coincide with CARR’s “no new CDOR or BA loan” milestone. CFIF further recommends that the outstanding stock of BAs sold into the market should decline to approximately $70 billion by the end of January 2024, and to $35 billion by the end of April 2024, with between $10 and $20 billion of BAs to be issued in June 2024. Banks are expected to stop issuing new BAs after the end of June 2024 when their loan facilities will no longer offer the BA draw down option. These target amounts are meant to be approximate aggregate guidelines, with each major BA-issuing bank reducing its issuance on an equivalent pro-rata basis. Reaching the target amounts is also dependent on the pace of each bank’s loan remediation timelines. Note that these recommendations have no impact on the ability of borrowers to draw down funds using their existing BA based facilities.
CFIF and the BATVN will carefully monitor the decline of BAs and its impact on Canadian money market functioning.
The Canadian Fixed-Income Forum (Forum) is a senior level industry-wide committee established by the Bank of Canada to discuss developments in fixed-income market structure and functioning, market practices, and related policy issues. The goals of the Forum are to:
- enhance the efficiency and resilience of the Canadian fixed-income market;
- improve the quality, clarity and market-wide understanding of Canadian fixed-income trading practices;
- evaluate and propose changes to market infrastructure;
- communicate any recommendations and analysis to oversight authorities, regulators, industry groups and other market participants as needed.
The Forum will not discuss monetary policy or policy issues directly relating to the size and distribution of the federal government’s debt programme which are covered through other fora.
About the BATVN
The BA Transition Virtual Network is co-chaired by Elaine Lindhorst (TD Asset Management) and Charles Lesaux (RBC Capital Markets) and consists of members from close to 30 institutions, primarily representing the major buy-side investors active in BAs. Members include insurance companies, pension funds, money market funds, the major BA issuing banks and their dealers, as well as other relevant stakeholders. Member institutions account for approximately 60% of end-investor BA purchases.
Financial Markets Department
Bank of Canada
Bank of Canada