The Bank of Canada (BoC) announced changes to the eligibility criteria and review process for applications for its Contingent Term Repo Facility (CTRF).
As non-bank financial institutions (NBFIs) play an increasingly important role in fixed income markets and in the global financial system, these changes provide greater clarity on the eligibility of non-bank financial intermediaries (NBFIs) and define more precise criteria to guide the central bank’s review of applications for eligible counterparties. These changes will inform its decision on whether to grant individual applicants access to the CTRF.
BoC will also make operational changes to enhance the efficiency of the CTRF. These changes include onboarding eligible counterparties prior to activation of the CTRF, conducting occasional readiness testing, and enhancing existing systems and processes that support the CTRF when the facility is used.
CTRF eligibility criteria
To ensure the CTRF remains an effective liquidity tool to address market disruptions in times of severe market stress, eligible counterparties will be subject to the following criteria:
- Significant activity: Eligible counterparties must demonstrate, to the satisfaction of the BoC, significant activity in Canadian-dollar money markets and/or fixed income markets, either through the size of their CTRF eligible assets and/or level of repo activity.
- Regulation: The scope of the Bank’s review of eligible counterparties will depend on the extent to which they are subject to federal or provincial financial and/or market regulation.
- Risk assessment: Eligible counterparties that demonstrate significant activity and that are subject to federal or provincial regulation will undergo a standard risk assessment, while those that demonstrate significant activity but that are unregulated will be subject to a more comprehensive risk assessment.
- To better delineate the Bank’s liquidity facilities, any deposit-taking institutions currently eligible for the Bank’s Standing Term Liquidity Facility (STLF) will no longer be eligible for the CTRF.
Additionally, to enhance efficiency and improve operational readiness, the BoC plans to transition CTRF operations from a bilateral standing facility to a fixed rate, full allotment auction that uses the BoC Auction System (BCAS) to conduct its other overnight and term repo operations. Under this new format, if the CTRF is activated, the auction will be conducted daily at a specified time and will include multiple predetermined tenors (up to a maximum of 30 days).
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