Expanded Bank of Canada Balance Sheet Requires Balancing Act: Crisis Working Group on Monetary and Financial Measures
April 23, 2020 – Between early March and mid-April, the Bank of Canada’s balance sheet more than doubled, dwarfing anything seen in 2008. Moreover unlike 2008, this increase has serious implications for future inflation, because the Bank’s increased liabilities are not the result of government deposits, but rather increased “settlement balances” or deposits by financial institutions, which increases the monetary base.
Once the pandemic and economic crisis passes there is no easy solution to the potential inflation problem arising from more money chasing fewer goods and services. Trying to unwind the Bank’s balance sheet by selling longer-term assets is fraught with political risk. Alternatively, while a floor system could help…
Hugh O’reilly – Regional, Economically Important Credit Unions Must Be Included In Stlf
From: Hugh O’Reilly To: Bill Morneau, Minister of Finance Date: April 16, 2020 Re: Regional, Economically Important Credit Unions must be Included in STLF The Bank of Canada has made a series of interventions designed to support Canada’s financial system and ensure the availability of credit during the COVID-19 crisis. These actions are important to ensure that small […] David Powell – Filling The Gap: Support Still Needed For Canada’s Asset-based Finance Sector
To: Department of Finance From: David Powell Date: April 13, 2020 Re: Filling the Gap: support still needed for Canada’s asset-based finance sector The pandemic-induced economic crisis is both unexpected and unique. Otherwise financially viable individuals and businesses may be unable to make their lease or loan payments, which poses the threat of cascading defaults […] David Losier – Government Guaranteed “ready For Business” Cash Flow Loans
To: The Department of Finance From: David Losier Date: April 6, 2020 Re: Government guaranteed “ready for business” cash flow loans Many economists are predicting a V-shaped recession, deep and temporary. Fact is, the V will probably be a lopsided U, a sharp downturn followed by a flat line and a sloping recovery. The longer […] Mark Zelmer – Managing The Economic Consequences Of The Coronavirus Pandemic
From: Mark Zelmer To: Bill Morneau, Minister of Finance Date: April 2, 2020 Re: Managing the Economic Consequences of the Coronavirus Pandemic The social distancing intended to slow the spread of the coronavirus has shut large segments of the Canadian and global economies, disrupting the ability to produce, consume and pay for goods and services. High uncertainty about how […] Time of the Essence for CEBA: Crisis Working Group on Monetary and Financial Measures
April 1, 2020 – The C.D. Howe Institute’s Monetary and Financial Measures Working Group, supported by a group of financial market experts, and co-chaired by former Governor of the Bank of Canada David Dodge and former Deputy Superintendent of OSFI Mark Zelmer, held its second meeting on Monday, March 30, 2020.
The working group agreed that, while there is a need for governments and central banks to monitor the effect of current crisis measures on debt and potential future inflation, these concerns are not a short-run issue and should not come at the expense of the immediate need for large-scale fiscal stimulus. To that end, the Monetary and Financial Measures Working Group recommends the following:
Quickly…Filling the Gap: Emergency Funding Programs and Asset-Based Finance in Times of Economic Crisis
Large-Scale Funding Program Needed to Bolster Asset-Based Finance During Crisis The federal government should have a large-scale funding program in place to bolster asset-based finance during the current crisis, author David Powell argues in his latest research. The asset-based finance (ABF) industry is critical to the functioning of the economy. In 2018, the value of ABF […] David Powell – Filling The Gap: Emergency Funding Programs And Asset-based Finance In Times Of Economic Crisis
To: Department of Finance From: David Powell Date: March 27, 2020 Re: Filling the Gap: Emergency Funding Programs and Asset-Based Finance in Times of Economic Crisis In times of economic crisis, the federal government should have in place a large-scale program for funding asset-based finance intermediaries. No one wants to see a repeat of the […] Enhanced Government Credit Facility Needed: Crisis Working Group on Monetary and Financial Measures
March 25, 2020 – The Institute has established an expert crisis working group for finance and monetary policy, co-chaired by David Dodge, former Governor of the Bank of Canada, and Mark Zelmer, former Deputy Superintendent of OSFI. The group’s first meeting was held on Monday, March 23, 2020.
The crisis working group is calling for an expansive government guaranteed credit facility, in tandem with various fiscal measures, to help Canadians and the business community survive the COVID-19 economic crisis. Possible features of the facility could include:
100% guarantee by the Government of Canada, and available to Canadian firms either through federal and provincially-regulated…Glen Hodgson – The Role Of Crown Financial Institutions During A Pandemic
From: Glen Hodgson To: Canadians concerned about COVID-19 Date: March 17, 2020 Re: The Role of Crown Financial Institutions During a Pandemic COVID-19 has quickly become a global threat, causing a massive public health response and economic dislocation. Crown financial institutions, notably Business Development Bank of Canada (BDC) and Export Development Canada (EDC), can play an important role […] The Era of Digital Financial Innovation: Lessons from Economic History on Regulation
Rapid growth in financial innovation needs regulators’ attention Economic history gives us many examples of instances when financial innovations, rapid growth in credit supply and increased reliance on short-term financing have led to financial instability and crises. Therefore, at a time of rapid changes in the financial sector, it is important that regulators pay close […] There’s a better barometer for determining Canadians’ financial fragility – Financial Post Op-ed
Over the past 25 years, Canadians’ household debt has increased steadily as a share of their disposable income. During this time, and especially since the financial crisis, they have often been told their debt levels were unsustainable and that a day of reckoning was fast approaching. And yet that day has not come. One reason why seems clear: for the most part over the past 25 years, the amount Canadians spend servicing their debt has not changed as a percentage of their disposable income.
In a recent C.D. Howe Commentary, we argue that it is primarily this “debt service ratio” (interest payments plus reimbursement of principal divided by disposable income) that determines households’ ability to make their payments at…