Current BoC policies establish vital groundwork for stability – report

So far, Canada has been able to mitigate the worst effects of the COVID-19 economic shutdown

Current BoC policies establish vital groundwork for stability – report

Measures enacted by the Bank of Canada in response to the COVID-19 pandemic have provided sufficiently solid ground to help the national financial system absorb the shock, according to the central bank’s new analysis.

In the 2020 edition of its “Financial System Review Summary,” the BoC said that its policies to address the impact of the coronavirus – most notably, lowering the policy rate to 0.25% and supporting the flow of credit to households and businesses – are now exhibiting signs of success.

“Access to liquidity has greatly improved in key financial markets that had been showing signs of significant stress,” the BoC said. “Canada’s key financial institutions are strong enough to deal with these challenging conditions, including operational disruptions. … The financial system provides the credit, liquidity, and payment and settlement services necessary to address the economic impacts of COVID‑19 and facilitate the recovery.”

At the centre of this strategy are the Big Six banks, which continue to operate with “strong capital and liquidity buffers, diversified assets and the protection of a robust mortgage insurance system,” the BoC said in the study. “With these strengths, as well as the aggressive government policy response to the pandemic, the largest banks are in a good position to manage the consequences.”

BoC Governor Stephen Poloz said that without these steps, banks would have had a much harder time, “with important negative effects on the availability of credit to households and businesses.”

“We entered this global health crisis with a strong economy and resilient financial system,” Poloz said. “This will support the recovery. But we know that debt levels are going to rise, so the right combination of economic policies will be important too.”