Canada: Financial Sector Assessment Program-Technical Note on Systemic Liquidity Assessment

This Technical Note on Systemic Liquidity Assessment examines that confidence in the resilience of the Canadian financial system is strong but liquidity risks warrant attention. The financial system is strong thanks to the well-capitalized banking sector and the well-regulated financial system. It has also demonstrated resilience during past episodes of turmoil. The authorities should maintain efforts to enhance efficiency and liquidity in the domestic secured funding market. They should also monitor closely the ongoing structural shifts in the unsecured Canadian funding market and assess the merits of bolstering this market. Addressing data gaps and enhancing data-sharing and transparency of domestic funding markets are priorities. Despite progress in trade-level data for the repo market, a comprehensive market view is still missing. The Bank of Canada (BOC) should clarify the eligibility of the bilateral standing facilities and its emergency lending assistance policy, explicitly confirming that liquidity support is not restricted to recovery and resolution cases. In order to enhance responsiveness to evolving market risks, the BOC should increase the frequency of its collateral haircut calibration and its operational tests. Doing so would help ensure that its framework remains effective and adaptive.