Changes would allow central bank to retain some of its earnings
The government is planning to introduce legislative amendments that would allow the Bank of Canada to retain some of its earnings and offset financial losses, a report from Bloomberg has revealed.
Bank of Canada governor Tiff Macklem mentioned the plans in a press conference discussing the central bank’s latest policy rate hike.
According to Macklem, the planned changes would temporarily allow the Bank of Canada to retain its earnings “for the purpose of covering losses” rather than remitting them to the government. Normal remittances would then resume “once positive equity is restored.”
“The Bank of Canada and the Department of Finance have been discussing what would be the best solution in a Canadian context,” said Macklem.
Like most central banks, the Bank of Canada established a range of bond-purchase programs to boost financial markets as investors dumped assets at the onset of the pandemic. These programs have since been reversed as inflation began to rise, in addition to interest rates increasing for most of the past year.
The sudden shift has left Bank of Canada paying more on settlement balances than what it is currently receiving on its assets, Bloomberg reported.
“We will likely have a period of a couple of years of negative net income before our income reverses back to our normal positive state,” said Macklem, noting that other central banks are “also experiencing or will be experiencing” similar losses.
“The bank’s losses have no impact on our monetary policy decisions,” he added. “We don’t run monetary policy with a profit motive in mind.”
The Bank of Canada reported a comprehensive loss of $522 million in its 2022 third quarter results, versus the $697 million income it posted in the year prior.
The Bloomberg report said representatives of finance minister Chrystia Freeland did not immediately respond to inquiries about the potential legislative changes mentioned by Macklem.
“This is a good solution,” Macklem told reporters at the press conference. “It will allow us to manage our equity and give us all the tools we need.”
