The bank that’s supposed to provide the stability and the liquidity for a country is getting a much bigger one: the government.
The Bank of Canada on Monday announced it will begin taking on $10.4 billion in new liabilities over the next four years.
The bank will add $1.5 billion to its reserves to help it manage the risks of a global economic downturn and financial market instability.
“With the Bank of England and the International Monetary Fund already pledging to support banks as they adjust to this new crisis, it will be interesting to see if this is the first step in a wider effort to support the banks,” said Matthew Brown, a portfolio manager at RBC Wealth Management.
The move follows a year-long effort by the Bank to reduce its size.
In August, the bank unveiled a range of measures aimed at helping it better manage its $85 trillion in assets.
The bank’s $10 billion of new liabilities are just the beginning of what the bank said it plans to do to help keep the economy from spiraling out of control.
The government is also making a series of initiatives aimed at boosting the bank’s capacity and making sure it’s a place to do business in a global financial system.
The biggest change is the addition of $5 billion in assets to the bank that it will keep.
That includes $7 billion of the $9 billion in cash that the bank is already holding.
The $2.5 million it will add in its liabilities will help it keep a tighter leash on its operations and keep its capital requirements under control.
Other new liabilities will include $5.3 billion in foreign exchange reserves.
That will help the bank manage the fallout from a collapse in the value of the pound and other currencies.
The bulk of that money is meant to cover losses that it incurred from the recent economic downturn.
While the new bank is a big investment for the government, it won’t have a huge impact on the overall economy.
It will only be a “sensible and reasonable response” to the crisis, said Chris Williamson, chief executive officer of the Canadian Centre for Policy Alternatives.
“We are not looking at a big bailout or any bailout that’s going to make a big difference to the economy.”
Still, the move is a step in the right direction, Williamson said.
It’s a sign that “Canada is going to be much more responsive to the needs of the financial system.”
“I think this is going a long way toward making sure that we’re taking our financial system more seriously and taking our institutions more seriously, as well,” he added.
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