Chrystia Freeland finally offers plan to help Bank of Canada cover its losses

in the three months ended Sept. 30, 2022, the first time the institution had been in the red since it was created almost 90 years ago.By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails or any newsletter. Postmedia Network Inc. | 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300A welcome email is on its way.

Macklem flooded financial markets with money during the COVID-19 recession, determined to fend off the effects of the pandemic as quickly as possible. He purchased government bonds from private lenders by crediting their accounts at the central bank. Many other central banks did the same, putting downward pressure on interest rates by increasing the demand for bonds. Bond yields have an inverse relationship with price, so bidding up the price of the bonds helped keep interest rates low.

Initially, the central bank made money, but when interest rates spiked amid surging inflation, the accounting math changed. Now, the Bank of Canada is facing a couple of years of losses on those deposits it created for the financial institutions from which it purchased the bonds. The Bank of Canada insisted the situation was nothing to worry about. There is no danger of the central bank going bankrupt and any number of private companies remain going concerns by offsetting current losses against future profits.

However, the Bank of Canada wasn’t given the ability to retain earnings by the politicians who created it. The central bank must send its profits to the federal treasury. Typically, that’s about $1 billion per year, and the transfer surged to about $2 billion during the early phase of QE. But there is no provision in the enabling legislation for managing losses.Article content

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