Responding to the crisis: extraordinary operations
In response to the COVID‑19 crisis, the Bank designed and launched a suite of liquidity facilities and asset purchase programs. These tools were integral in restoring market functioning and in keeping credit flowing to the economy. Combined with the Bank’s extraordinary forward guidance, they also enabled interest rate cuts to work their way through the economy. While adapting to physical distancing protocols and remote work, Bank employees worked quickly to set up these extraordinary facilities, which were unprecedented in both their scale and scope.
The Bank launched or expanded 11 special liquidity and asset purchase facilities (8 of which were entirely new). The Bank also enlisted external asset management expertise to establish and manage three of these facilities.
In the first three months of its crisis response, the Bank’s various liquidity facilities and asset purchases injected more than $377 billion in total liquidity into the financial system. Overall, the Bank’s balance sheet nearly quintupled, from $120 billion in March to roughly $550 billion by the end of 2020. These purchases were mainly funded by an increase in settlement balances, which rose from $250 million before the crisis to close to $350 billion by the end of the year.
The Bank’s quantitative easing (QE) program initially contributed to help core markets return to normal functioning, then pivoted to providing additional monetary stimulus to support the economy and achieve the Bank’s inflation target. The QE purchases lowered longer-term interest rates that matter most for households and businesses. This complemented the policy rate cuts made by the Bank at the onset of the pandemic, which directly affected very short-term interest rates. As market functioning returned and the focus shifted to the economic recovery, the Bank discontinued or scaled back some of the short-term liquidity facilities during the latter half of 2020.
In addition to outright asset purchase programs, the Bank also provided short-term collateralized loans to sound financial institutions as part of its strategy to support liquidity in the financial system. This was done by significantly expanding the existing term repo program and by accelerating the launch of the new Standing Term Liquidity Facility (STLF).1 The availability of a public liquidity backstop ensured that sound financial institutions had continued access to funding. In particular, the STLF provided smaller financial institutions (that may not have access to other Bank-run liquidity facilities such as the Standing Liquidity Facility and the Contingent Term Repo Facility) with access to central bank liquidity by pledging assets (including mortgages).2
Enabling the response with enhanced operations
Extensive measures were put in place to ensure the Bank could continue to conduct its critical operations during the pandemic. This was challenging because some operations have security and technology requirements that depend on staff being onsite to conduct them.
To assure the health and safety of onsite staff, as well as the continuity of critical market operations, the Bank conducted these activities across five separate sites, supported by staff working from home. The Calgary Operational Site, opened in 2019, played a key role in enabling this approach, validating the decision to have a fully parallel operations site.
The volume of transactions was significantly higher in 2020 than in previous years
| 2018 | 2019 | 2020 | ||||
|---|---|---|---|---|---|---|
| Operation type | Q1 | Q2 | Q3 | Q4 | ||
| Total domestic operations | 680 | 676 | 192 | 382 (287) |
405 (253) |
298 (194) |
| Total extraordinary operations | 0 | 0 | 25 | 306 (237) |
330 (218) |
268 (164) |
| Total outsourced operations | 0 | 0 | 0 | 106 (50) |
115 (27) |
109 (27) |
Note: Values in parentheses represent the number of operations with take-up if different from total number of operations.
- 1. Bank of Canada, “Bank of Canada Launches the Standing Term Liquidity Facility,” market notice (March 19, 2020).[←]
- 2. The Standing Liquidity Facility provides overnight loans to direct participants of the Large Value Transfer System, and the Contingent Term Repo Facility can only be accessed by federally or provincially regulated financial institutions that can demonstrate significant activity in the Canadian money and/or bond markets.[←]