The Bank of Canada's balance sheet reverts to its pre-crisis state

Last Friday's Weekly Financial Statistics release marks the end of the Bank of Canada's policy of providing liquidity to financial markets by means of securities purchased under resale agreements (SPRA). In the first three months following the introduction of these measures in September 2008, the Bank's balance sheet increased by 56%, and almost half of its assets - some $38b - took the form of SPRA (see also this post).

As the liquidity crisis receded, the Bank announced that it would be unwinding its SPRA holdings, and this operation was completed sometime last week. Here is a graph of the evolution of the asset side of its balance sheet.

On the liabilities side, the expansion of the balance sheet was achieved by increasing the federal government's deposits at the Bank of Canada:

Having the federal government hold those increased liabilities simplified matters somewhat; presumably it would be more willing to coordinate its activities with those of the Bank than private banks would have been.

Comments

[Nick Rowe]

Presumably, most of those (green) "securities purchased under resale agreements" were CMHC-insured mortgages??

At the peak, the Federal government had about an extra $30 million deposits at the BoC. I'm trying to get my head around what the offsetting liability would have been on the government's balance sheet. Presumably, it issued more Tbills and bonds to the public than it would otherwise have done??

[Stephen Gordon]

I think that's how it worked: the govt borrowed money and deposited the proceeds at the Bank.

[Stephen Gordon]

Just to clarify, this wouldn't show up as an increase in the government's *net* debt - it was offset by the increased deposits at the Bank of Canada.

And the increased supply of a highly-liquid asset - in the form of government T-bills - would have complemented the exercise.

[Angelo Melino]

You can get an idea of which assets were accepted as part of the "green" securities by looking at the monthly reports entitled "Supplementary Information of Balance Sheet Loans and Receivables" on the Bank's web page http://www.bankofcanada.ca/en/about/index.html

CMHC-insured mortgages are not broken out but are included as part of "Securities issued or guaranteed by the Government of Canada". This is the largest single item, but large contributions are also made by provincial securities and, looking at the various there was some corporate and ABCP paper as well.

[Qc]

Looking at the Bank of Canada's Balance sheet is somewhat misleading as outright purchase of MBS was done by the Canada Mortgage and Housing Corporation -I think to the tune of 75 billion. The Bank of Canada, much in contrast to the Fed in the U.S. or the Bank of England, did not engage in outright purchase of MBS, it only engaged in SPRA using a wide range of securities.

A post on CMHC balance sheet would be warranted.

[Mungo]

Why can the Bank of Canada not pay off the outstanding debt of the Canadian government for a zero percent loan to be repaid over 20-years?