Consultation on Planned Changes to Conditions for Assets Eligible as Collateral under the Bank of Canada’s Standing Liquidity Facility (SLF)

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 introduce new concentration limits for private sector and municipal securities. Prior to finalizing the changes, the Bank is seeking the views of Large Value Transfer System (LVTS) participants and other interested parties.  The Bank will consult directly with all LVTS participants and welcomes written comments on the planned changes from other market participants. Comments can be emailed by 31 October 2013 to

Planned Changes

The Bank is planning to introduce limits on the share of the total value of collateral pledged by any single LVTS participant that may consist of private sector and municipal securities. It also plans to establish a similar limit on the share that may be met by securities issued by LVTS participants. In addition, it plans to reduce the existing limit on the value of collateral that is the obligation of any single corporation or municipality or any related entities.

These planned changes to the Bank’s collateral policy reflect, among other things, the new Principles for Financial Market Infrastructures (PFMIs) that were published by Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO)  in 2012. Specifically they reflect the provisions relating to collateral and wrong way risk. The PFMIs require an FMI to mitigate specific wrong way risk by limiting the acceptance of collateral that would likely lose value in the event that the participant providing the collateral defaults. While the Bank does not own or operate LVTS, it does hold the collateral supporting it, and LVTS and the SLF are subject to a single collateral policy.

The planned changes to the Bank’s collateral policy will be finalized following the consultation period and are expected to be formally announced by the end of 2013.  The Bank is considering granting a six-month phase-in period to allow LVTS participants to align themselves fully with the changes in policy, once they are finalized.

The planned changes are summarized as follows:

• All eligible securities issued by a municipal government or a private sector issuer (including corporate bonds, covered bonds, bankers’ acceptances, commercial paper, and ABCP) will be subject to a new sectoral concentration limit. No more than 20 per cent of the total collateral value pledged by an institution may be comprised of such municipal and private sector securities.
• Securities issued by LVTS participants or related parties (including covered bonds, but excluding ABCP sponsored by an LVTS participant) will be subject to a sectoral concentration limit of 10 per cent of the total collateral value pledged by an institution, and included as part of the overall municipal and private sector limit above.
• Obligations of a single private sector or municipal issuer or related parties (including covered bonds) will be limited to no more than 5 per cent of the total collateral value pledged by an institution.

Media:

Bank of Canada
613 782-8782