BoC exec says they are ready for spillovers

The Bank of Canada has announced that it is prepared to defend Canadian banks from a global financial meltdown if the current banking crisis in the U.S. and Europe spills into Canada.

During a speech at the National Bank Financial Services Conference on Wednesday, Bank of Canada deputy governor Toni Gravelle stated that the bank was “ready to act in the event of severe market-wide stress and provide liquidity support to the financial system.”

Gravelle assured attendees that while the bank stands ready to defend the financial system using its extraordinary tools, “the bar is very high” for the bank to do so. He cited the near-collapse of the British pension system last September following disruptive tax cuts by then Prime Minister Liz Truss, as an example of a situation that would prompt the Bank of Canada to act.

Gravelle also discussed the bank’s response to the COVID-19 crisis, saying that they had learned many lessons and would do things more efficiently if a similar major crisis arose and markets stopped functioning.

He also addressed the potential for moral hazard and stated that any asset-buying to protect financial institutions would be limited to extreme cases to avoid encouraging investors to take unusual risks without bearing the consequences if things go wrong.

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