Lessons learned by policymakers during the global financial crisis in 2009 likely helped the Bank of Canada avoid liquidity stress in the interbank payment system during the Covid-19 crisis, according to new research from bank staff.
The central bank published a paper examining the operation of Canada’s electronic funds transfer system for large payments, the Large Value Transfer System (LVTS), during the pandemic.
Among other things, the research found that the onset of the pandemic didn’t intensify stress in the LVTS, unlike what happened during the global financial crisis.
The LVTS settles most of the payment value that is transacted in Canada every day, it noted.
For example, in 2019, it processed about $189 billion in 40,000 payments per day.
During the pandemic, settlement balances were elevated. The total daily value of LVTS payments peaked on September 30, 2020, at $622 billion, the paper said.
“The Covid-19 pandemic has highlighted the importance of a well-functioning large-value interbank payment system, especially during a crisis,” the paper said.
In addition to handling large settlement balances during Covid-19, the LVTS also experienced low volumes of rejected and delayed payments during the pandemic, it reported.
The lack of stress in the system came as the central bank took a series of actions to provide the financial system with liquidity, including adopting flexible collateral policies and introducing large-scale asset purchase programs (a.k.a quantitative easing or QE).
“Swift changes to the Bank of Canada’s collateral policy and its large-scale asset purchase programs likely eased liquidity pressures in the system,” the paper said.