For the period ended September 30, 2024, unaudited
Context of the Quarterly Financial Report
The Bank of Canada is the nation’s central bank. The Bank’s mandate under the Bank of Canada Act is to promote the economic and financial welfare of Canada. Its activities and operations are undertaken in support of this mandate and not with the objective of generating revenue or profit. The Bank is committed to keeping Canadians informed about its policies, activities and operations.
This report has been prepared in accordance with section 131.1 of the Financial Administration Act and follows the guidance outlined in the Treasury Board of Canada’s Directive on Accounting Standards: GC 5200 Crown Corporations Quarterly Financial Report. Bank management is responsible for the preparation of the report, which was approved by the Audit and Finance Committee of the Board of Directors on November 13, 2024.
This Quarterly Financial Report should be read in conjunction with the condensed interim financial statements for the third quarter of 2024 included in this publication and with the Bank’s Annual Report 2023. Disclosures and information in the Annual Report apply to the current quarter unless otherwise updated in this quarterly report.
Supporting the economy and the financial system
After the onset of the COVID‑19 pandemic, the Bank used extraordinary measures to restore the proper functioning of financial markets and support the economic recovery. In response to high inflation following the reopening of the Canadian economy, the Bank rapidly raised its policy rate and undertook quantitative tightening, in which maturing bond holdings are not being replaced. Based on continued evidence that underlying inflation is easing, the Bank began lowering the overnight rate in June and is continuing its policy of balance sheet normalization. Refer to the Bank’s website for more information on these measures, including the relevant press releases and market notices.
Managing the balance sheet
| Financial position (in millions of Canadian dollars) |
|||
|---|---|---|---|
| As at | September 30, 2024 | December 31, 2023 | September 30, 2023 |
| Assets | |||
| Loans and receivables | 16,012 | 6 | 5 |
| Investments | 242,894 | 292,341 | 288,131 |
| Derivatives—indemnity agreements with the Government of Canada | 19,059 | 23,406 | 34,288 |
| All other assets* | 1,068 | 1,023 | 1,207 |
| Total assets | 279,033 | 316,776 | 323,631 |
| Liabilities and deficiency | |||
| Bank notes in circulation | 118,834 | 119,430 | 117,745 |
| Deposits | 165,288 | 196,212 | 199,465 |
| Securities sold under repurchase agreements | 2,852 | 6,638 | 10,581 |
| Other liabilities | 337 | 342 | 306 |
| Deficiency | (8,278) | (5,846) | (4,466) |
| Total liabilities and deficiency | 279,033 | 316,776 | 323,631 |
* All other assets includes Cash and foreign deposits, Capital assets and Other assets.
The Bank’s holdings of financial assets stem from its unique role as the exclusive issuer of Canadian bank notes and its activities related to monetary policy and the financial system. The assets on the Bank’s balance sheet have declined due to the Bank’s quantitative tightening measures, which were put in place after market conditions and economic performance improved. The Bank’s total assets decreased by 12% to $279,033 million as at September 30, 2024, compared with their value as at December 31, 2023. The main driver of this decline was the maturity of investments.
Loans and receivables increased to $16,012 million as at September 30, 2024. This balance is composed primarily of securities purchased under resale agreements (SPRAs) on an overnight basis. SPRAs are high-quality assets acquired through the securities repurchase (repo) market, in line with the Bank’s framework for market operations and liquidity provision.
Investments decreased by 17% compared with December 31, 2023, to $242,894 million as at September 30, 2024. This decrease was driven mainly by the following movements within the Bank’s holdings:
- Government of Canada securities, which include nominal bonds and real return bonds, decreased by $43,224 million during the first nine months of the year. This decline is mainly due to the bonds maturing. This resulted in a decline of $29,975 million in Government of Canada bonds held at fair value and a decline of $13,249 million in Government of Canada bonds held at amortized cost.
- The Bank engages in repo operations, which provide market participants with a temporary source of Government of Canada securities and provincial bonds on an overnight basis. These operations also improve the availability of the Bank’s holdings of Government of Canada securities. The volume of securities repo operations declined during the first nine months of 2024, resulting in a decrease of $4,122 million in securities lent or sold under repurchase agreements, compared with December 31, 2023.
Derivatives—indemnity agreements with the Government of Canada refers to the agreements that were put in place to indemnify the Bank and allow it to support Government of Canada, provincial and corporate bond markets. Losses resulting from the sale of assets within the Government of Canada Bond Purchase Program, the Provincial Bond Purchase Program and the Corporate Bond Purchase Program are indemnified by the Government of Canada, whereas gains on disposal are remitted to the government. The $19,059 million balance represents the fair value of the derivatives associated with the net unrealized losses on these assets as at September 30, 2024. Derivatives decreased by $4,347 million during the nine-month period, due to a slight decrease mainly in long-term bond yields. This is represented in the asset profile chart by All other assets.
Bank notes in circulation represents approximately 41% (37% as at December 31, 2023) of the Bank’s total liabilities of $287,311 million. Bank notes in circulation decreased slightly compared with December 31, 2023, to $118,834 million as at September 30, 2024. This decrease reflects seasonal variation in demand for bank notes.
Deposits consists of deposits made by the Government of Canada, members of Payments Canada and others. This balance declined by 16% to $165,288 million as at September 30, 2024, compared with December 31, 2023, reflecting continued balance sheet normalization.
Securities sold under repurchase agreements decreased by 57% to $2,852 million as at September 30, 2024, compared with December 31, 2023. This liability represents the repurchase price for securities repo operations and overnight reverse repo operations. The Securities Repo Operations program supports core funding markets and the proper functioning of the Government of Canada securities market. Overnight reverse repos are conducted as needed and help to effectively implement monetary policy by withdrawing intraday liquidity. This withdrawal complements the standing deposit and lending facilities.
Deficiency increased to $8,278 million as at September 30, 2024, as a result of comprehensive losses of $2,432 million for the first nine months of the year. As at September 30, 2024, the accumulated deficit was $9,314 million. Deficiency also includes the following offsetting amounts: $5 million of authorized share capital, a special reserve of $100 million, an investment revaluation reserve of $518 million and an actuarial gains reserve of $413 million, each as at September 30, 2024. Refer to Note 10 in the condensed interim financial statements for more information about the Bank’s deficiency.
Results of operations
| Results of operations (in millions of Canadian dollars) |
||||
|---|---|---|---|---|
| For the three-month period ended September 30 |
For the nine-month period ended September 30 |
|||
| 2024 | 2023 | 2024 | 2023 | |
| Interest revenue | 964 | 965 | 2,700 | 2,943 |
| Interest expense | (1,523) | (2,260) | (4,772) | (6,918) |
| Net interest expense | (559) | (1,295) | (2,072) | (3,975) |
| Other revenue | 3 | 3 | 15 | 12 |
| Total loss before operating expenses | (556) | (1,292) | (2,057) | (3,963) |
| Total operating expenses | (176) | (167) | (519) | (498) |
| Net loss | (732) | (1,459) | (2,576) | (4,461) |
| Other comprehensive income | 11 | 131 | 144 | 92 |
| Comprehensive loss | (721) | (1,328) | (2,432) | (4,369) |
The Bank incurred net losses of $732 million and $2,576 million for the three- and nine-month periods ended September 30, 2024, respectively. These losses occurred primarily because the interest expense incurred on deposits was greater than the interest earned on investments. This net interest expense was a result of the Bank increasing its policy rate from 0.25% in the first quarter of 2022 to a peak of 5.00% in the third quarter of 2023 before gradually reducing it to 4.25% in the third quarter of 2024. In time, the Bank will resume generating net income. The net losses do not affect the Bank’s ability to carry out its mandate.
Interest revenue depends on market conditions, the impact of those conditions on the interest-bearing assets held on the Bank’s balance sheet, and the volume and blend of these assets. The Bank earns interest on its investments in Government of Canada securities, on securities purchased under resale agreements (if any) and on assets acquired through large-scale asset purchase programs. In the third quarter and the first nine months of 2024, interest revenue decreased by $1 million (or 0%) and $243 million (or 8%), respectively, compared with the same periods in 2023. This decline was the result of the Bank’s lower average holding of interest-yielding investments throughout the period, which was partially offset by a slight increase in the average yield on investments and an increase in interest earned on SPRAs.
Interest expense consists mainly of interest incurred on deposits held by the Bank. During the third quarter and the first nine months of 2024, the interest expense decreased by $737 million (or 33%) and $2,146 million (or 31%), respectively, compared with the same periods in 2023, resulting primarily from a lower average volume of deposits during the period.
Operating expenses for the third quarter and the first nine months of 2024 increased by $9 million (or 5%) and $21 million (or 4%), respectively, compared with the same periods in 2023. This primarily reflects an increase in costs for staff and for technology and telecommunications, although the increase was partially offset by a decrease in costs for bank note research, production and processing and in other operating expenses.
- Staff costs increased by $23 million (or 30%) and $51 million (or 20%) in the third quarter and the first nine months of 2024, respectively, compared with the same periods in 2023, as a result of the following:
- Salary costs increased by $16 million (or 8%) for the first nine months of 2024 as positions were filled to deliver the Bank’s core functions, including the new function of retail payments supervision. The annual compensation adjustment also contributed to the increase.
- Benefits and other staff costs increased by $35 million (or 62%) for the first nine months of 2024, primarily due to an increase in current costs related to the Bank’s defined-benefit pension plans and higher premiums for health benefits. The Bank’s deferred employee benefits related to the defined-benefit pension plans increased due to a change in the discount rate (interest rate used to calculate the present value of future pension payments to employees).1 As market interest rates fluctuate, the discount rate is adjusted accordingly in the calculation.
- Bank note research, production and processing expenses decreased by $13 million (or 81%) and $25 million (or 83%) in the third quarter and the first nine months of 2024, respectively, compared with the same periods in 2023. This decrease was driven by a decline in the volume of bank notes being printed, which varies from one year to the next based on the annual production plan and market demand.
- Technology and telecommunications costs increased by $4 million (or 14%) and $10 million (or 12%) in the third quarter and the first nine months of 2024, respectively, compared with the same periods in 2023. This increase was driven by the Bank’s continued focus on strengthening the resilience of its information technology systems and by technology costs to build the Bank's new retail payments supervision system.
- Other operating expenses decreased by $3 million (or 17%) and $11 million (or 20%) in the third quarter and the first nine months of 2024, respectively, compared with the same periods in 2023. This decline was driven primarily by the completion in 2023 of the Bank’s outsourced operational contract for the Unclaimed Properties Office and the Bank’s shift to internal solutions for 2024.
Other comprehensive income for the nine-month period ended September 30, 2024, was $144 million. It includes a remeasurement gain of $89 million on the Bank’s defined-benefit plans, which is due mainly to an increase in the fair value of the plans’ assets and increases in discount rates.2 It also includes a $55 million increase in the fair value of the Bank’s investment in the Bank for International Settlements.
Comprehensive loss for the nine-month period ended September 30, 2024, was $2,432 million, due primarily to the net loss of $2,576 million incurred during that period.
Looking ahead through 2024
| The Bank’s 2024 Plan (in millions of Canadian dollars) |
||||
|---|---|---|---|---|
| 2024 budget | 2024 forecast | |||
| For the year ended December 31 | $ | % | $ | % |
| Staff costs | 379 | 54 | 407 | 57 |
| Bank note research, production and processing | 13 | 2 | 10 | 2 |
| Premises costs | 34 | 5 | 37 | 5 |
| Technology and telecommunications | 122 | 17 | 124 | 17 |
| Depreciation and amortization | 74 | 10 | 69 | 10 |
| Other operating expenses | 85 | 12 | 67 | 9 |
| Total expenditures | 707 | 100 | 714 | 100 |
This is the last year of the Bank’s 2022–24 strategic plan, Delivering on Our Promise. The Bank’s financial management framework enables decisions about allocating resources to achieve the Bank’s objectives and mitigate risks in a prudent fiscal manner.3
The 2024 forecast of $714 million is $7 million higher than the 2024 budget. The increase is due to higher forecasted staff costs, driven primarily by an increase in the current costs related to the Bank’s defined-benefit pension plans.
Staff costs continues to represent the largest portion of the Bank’s expenditures, while production costs for bank notes are expected to decrease due to existing reserves. Other expenditures include the cost of enhancing systems and tools to support operations, sustain the Bank’s resilience posture and prepare for the future. These costs also contribute to fulfilling the Bank’s new core functions, advancing its digital transformation and mitigating risks.
Operational highlights and changes
Changes in personnel, operations and programs have occurred since June 30, 2024.
Governing Council and Board of Directors
No changes were made to the membership of the Governing Council or Board of Directors during the quarter.
Operations and programs
Following the end of the third quarter, the Bank discontinued the Securities Repo Operations program and launched its Securities Lending Program to support the liquidity of the Government of Canada securities markets.
The Bank announced decreases of 25 basis points in the policy interest rate on July 24, 2024 and September 4, 2024. On October 23, 2024 it announced a further 50-basis-point decrease.
Risk analysis
The Bank’s financial risks are discussed in the notes to the financial statements of December 31, 2023. Note 4 of the condensed interim financial statements for September 30, 2024, also provides an update on these financial risks.
Condensed interim financial statements
- 1. Deferred employee benefits (DEB) are primarily retirement benefits that employees have earned during their time at the Bank but will receive in the future, after they retire or leave. To estimate the DEB, several assumptions are used, one of which is the discount rate. The discount rate is an interest rate used to calculate the present value of future pension payments.. The discount rates used to calculate the pension benefit plans and other benefit plan expenses ranged from 5.0% to 5.1% for 2023 and are at 4.6% for the first nine months of 2024. This decrease will result in increased benefit costs for 2024, all else being equal.[←]
- 2. The defined-benefit obligations are measured using the discount rate in effect as at the period-end. The rate applicable to the defined-benefit obligations as at September 30, 2024, was a range of 4.3% to 4.8% (4.6% as at December 31, 2023). See Note 9 to the condensed interim financial statements for more information.[←]
- 3. The Bank’s forecasts for its operations do not include projections of net income and financial position. Such projections would require assumptions about interest rates, which could be interpreted as a signal of future monetary policy.[←]