Bank of Canada unwinds three emergency support programs

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The Bank of Canada is discontinuing its programs to purchase bankers' acceptances and Canada mortgage bonds, and reducing its term repo operations, as the central bank further scales back its emergency measures put in place last spring to stabilize financial markets at the height of the COVID-19 crisis.

In a news release, the central bank said the BA and mortgage bond programs will both end with their final scheduled operations the week of Oct. 26. It said that effective Oct. 21, it will reduce its term repo operations to every second week, from weekly – returning it to its prepandemic frequency.

“As overall financial market conditions continue to improve in Canada, usage in several of the Bank of Canada’s programs that support the functioning of key financial markets has declined significantly,” the bank said in announcing the changes.

All three programs, designed to provide much-needed liquidity to the banking system to keep credit flowing during the worst of the crisis, have fallen into disuse as the stresses from the pandemic eased and markets became much more self-sufficient.

The move follows the bank’s decision a month ago to reduce its purchases of federal government treasury bills and similar short-term provincial money market debt, citing improvements in the health of short-term funding markets.

However, the central bank has pledged repeatedly that it will maintain the highest-profile of its emergency asset buying programs – its minimum $5-billion-a-week purchases of Government of Canada bonds – “until the [economic] recovery is well under way.” It has also so far maintained its two programs to purchase provincial and corporate bonds, even though demand for both programs has been far below original expectations.

Of the three programs being wound back in the bank’s latest announcement, the biggest is the expanded term repo program, under which the central bank has purchased more than $200-billion of the short-term bank financing instruments since mid-March. The program hasn’t generated any purchases since mid-September. The bank had originally ramped up the program to twice a week in mid-March, but reduced it to once a week in June.

The Bankers' Acceptance Purchase Facility, involving short-term credit instruments typically used in international trade financing, was used heavily when it was introduced in March, but it hasn’t been tapped at all since late April. The central bank made about $47-billion in purchases under the program, although all of those purchased assets have since reached maturity, meaning the central bank is no longer holding any bankers' acceptances on its balance sheet.

The Canada Mortgage Bond Purchase Program predates the pandemic, but the Bank of Canada ramped up its purchases dramatically during the crisis. It has accumulated about $8-billion of the bonds under its emergency measures since mid-March, through twice-weekly purchases directly from Canada Mortgage and Housing Corp. The size of the bank’s typical purchases in the past couple of months has been less than a quarter of what it was routinely buying in the spring.

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