The Bank of Canada today announced that it plans to start accepting certain types of asset-backed commercial paper as collateral for use under its Standing Liquidity Facility.

In the context of the ongoing review of the Bank of Canada’s collateral policy, which began in the spring, the Bank has decided to broaden the range of securities acceptable as collateral for use under the SLF to include: certain types of bank- sponsored ABCP; and, US Treasuries.

By the end of March 2008, the Bank will expand the list of eligible securities to include Canadian dollar-denominated ABCP that meets the following general criteria: bank-sponsored, covered by a liquidity provision that meets global standards, and backed by traditional assets of an acceptable credit quality. In addition, higher standards of disclosure and additional credit ratings will be required.

ABCP backed by collateralized debt obligations and other highly-structured assets will not be considered at this time.

Over the next two months, the Bank will consult with financial institutions and other interested parties on the terms and conditions that will apply to ABCP as collateral. By the end of March 2008, the Bank will announce the terms and conditions regarding the use of ABCP as collateral, including the margins that will be applied. The arrangements for accepting U.S. Treasuries as collateral are expected to be completed by mid-2008.