Bank of Canada urges banks to use liquidity facility without stigma

The Bank of Canada has urged financial institutions to utilize its Standing Liquidity Facility (SLF) for overnight liquidity needs without fear that such usage might suggest financial troubles. In a joint statement with the Office of the Superintendent of Financial Institutions (OSFI), the central bank emphasized that SLF advances should be treated as regular operations.

Deputy Governor Toni Gravelle spoke at a Bloomberg conference in New York, asserting that the bank considers the SLF's use by institutions for overnight liquidity as a standard liquidity management practice, rather than an emergency measure. The SLF operates as a high-value payment system overseen by the Bank of Canada, offering fully secured intraday and overnight credit to financial institutions partaking in the central bank's Lynx payment system.

Institutions can settle their end-of-day payments using reserve buffers, funds which, if released into the market, could enhance payment system efficiency. The Bank of Canada and OSFI stated that the SLF's usage by Lynx participants is in line with standard liquidity management practices. Gravelle added that the central bank is working on updating its repo clearing infrastructure, with plans to implement a new tri-party platform aimed at fostering the development of the term repo market and attracting new participants, including major corporate treasuries.