How should the Bank of Canadas liquidity facilities be viewed?
During the global financial crisis, the Bank of Canada expanded its balance sheet by roughly 60% to provide exceptional liquidity to support the efficient functioning of financial markets. These facilities were structured as buyback operations (term purchase and resale agreements) or loans (term loan facility) and the transactions were undertaken on a sterilized basis meaning the Bank did not have to increase central bank reserves to support the transactions. Beginning in April 2009, the buyback operations supported the Bank’s monetary policy framework at the effective lower bound. Since the spring of 2010, with improvements in the economy and the financial system, the Bank unwound the last of its exceptional liquidity measures, and the Bank’s balance sheet has returned to its pre-crisis structure, with the largest liability created through the issuance of Canadian bank notes under the Bank’s currency function.
