Wednesday, May 6, 2015

Bank of Canada Proposes Changes for Market Ops and Emergency Lending

Can anyone help me better understand this? It's the mortgage part of the article that set me wondering? And the repo? Any help would be so appreciated- thanks in advance!
Monetary authorities seek to minimize risk and protect taxpayers
When the bank says they want to protect taxpayers, I know that's a LIE
Canada’s central bank is proposing changes to how it manages financial-market operations and deploys emergency lending as it seeks to minimize risk and protect taxpayers.
Change is needed to ensure the smooth functioning of the country’s financial system in normal times and to prepare for another shock that could freeze credit availability, as occurred during the 2007-2008 global financial crisis, Bank of Canada Senior Deputy Governor Carolyn Wilkins said on Tuesday.

 The proposed changes were addressed in consultation papers the Bank of Canada released on Tuesday. Among the proposals, the central bank is considering accepting mortgages as collateral under its emergency-lending programs as part of a broad rethinking of financial-market procedures. It is looking for feedback from market participants and will accept comments until July 4.

 During the crisis, the Bank of Canada established a temporary facility, which grew to 42 billion Canadian dollars ($34.7 billion), to ease financial pressure at securities dealers, while the federal government injected liquidity through the purchase of insured mortgages from lenders.
To boost liquidity, the Bank of Canada is proposing is to reduce the amount of government bonds it buys at auctions for its balance sheet. The move would increase the amount of newly-issued government debt available to other buyers, Ms. Wilkins said.
It also proposes to conduct regular longer-term repurchase transactions, or repos. Repo transactions are structured like an overnight loan that is backed by collateral, generally bonds and other debt securities, and carry interest. The central bank already conducts overnight operations as required, and the change would allow the Bank of Canada to carry out repo transactions with a term longer than overnight.
Ms. Wilkins said longer-term repos would give the central bank “timely insight about liquidity conditions in short-term funding markets.” The central bank proposes to begin term repo operations in the fall, with the goal of building up a portfolio in six months of C$7 billion to C$10 billion in such transactions.
The central bank is also eyeing the creation of a new repo facility that can be activated in the event of severe, market-wide liquidity woes, with financing available for up to a month to primary dealers and other institutions.
Meanwhile, it proposes restrictions on emergency funding for banks unable to acquire liquidity unless they can demonstrate a plan to shore up capital or wind up operations if recovery efforts fail.
Under its proposed new policies, the central bank would accept mortgages as collateral for emergency lending assistance, “but only as a last resort when other sources of collateral have been exhausted.”
This reminds me of the whole mortgage backed security scam?
“This should translate into a significantly larger capacity for eligible financial institutions to draw on [emergency lending assistance],” it said. Direct use of mortgages as collateral would be taken only in extreme circumstances when financial stability is threatened and other viable sources of collateral, including private-label residential mortgage-backed securities, have been exhausted.
The Bank of Canada is also looking at extending emergency lending to credit unions in extraordinary cases.


  1. Canada has a housing issue as you probably know. Banks who own the paper have an issue when the sentiment sours. BOC essentially frontronning the no bid in the collateral markets in preparation for ? BOC also trying to get in front of the liquidity concerns that have central banks buying all the "risk free" "good" collateral as their 'transmission" mechanism (think rehyopothicated and leveragable assets) and leaving nothing but a dried up lake for the secondary markets (which creates massive volatility). Essentially the entire mortgage collateral/repo/other are emergency measures to channel "liquidity (fresh CADs) into "good" collateralso the banks can survive a halt to the CTRL Print operation. Said differently, so your deposits dont "vanish" into the digital oblivion. Carney sneaked off just in time?

    1. Thanks for answering :)

      Even though your answer has has just me given me more questions, I am over at investopedia looking up all the terminology you are mentioning
      yes, I am very aware Canada has a big housing bubble issue.
      By owing the paper you mean holding the mortgage- so they are prepping for the bubble bursting? I gathered that much,, but thanks for that bit of confirmation
      This bit confuses me "To boost liquidity, the Bank of Canada is proposing is to reduce the amount of government bonds it buys"

      Seems contradictory because the bank buying the bonds from the government will contract the countries money supply

      I will keep working on the definitions and try to comprehend this a bit better
      Yes, it does look as if Carney jumped the ship before it sank
      the rat
      thanks for your help, again :)

  2. "To boost liquidity, the Bank of Canada is proposing is to reduce the amount of government bonds it buys"

    So the private sector banks can buy it and then use it to repo for more cash to buy more assets to repo for more cash to buy more assets so the ponzi can keep expanding exponentially. When the Central bank buys assets it takes that stock out of the market and therefore destroys the financing markets which provide the leverage to make asset prices go higher (think Yen or AUD carry trades).

    From today: same idea
    U.S. Treasury Department said it plans to increase the supply of short-term debt, in a bid to ease investors' concerns about difficulty trading in global bond markets WSJ

    Read this

    See presentation

    the collateral issue is not new

    Meanwhile, Saudi looking more and more interesting. The rumors about a coup in country as the new king purges and the quagmire in Yemen (as Iran warned) looks more and more like another run on Nayef. Sadr talking about calling out the forces to go after US interests coincides with accelerating velocity in Anbar (Saudi?). The Pak rejection of deployments to Yemen quite telling as thy weigh their SCO bid.

    ...and Iran still holding that Maersk tanker which could mean they were combing through the actual cargo. The story about an unpaid claim simply makes no sens in the context of all the Maersk ships transiting the gulf day in and day out. Why this ship coming out of Saudi????