Bank of Canada takes action to support financial system during pandemic

New York, USA — A stable financial system is essential to sustaining a country’s economy and overall development. However, the recent pandemic and global shutdown have shaken the stability of Canada’s economic structure. In addition, the covid-19 restrictions have affected market liquidity, housing programs and the overall financial situation.

Picture credits: Freepik

Despite the challenges, government officials and organizations have initiated financial assistance programs and supported the effective use of Canadian credit card to help stabilize the failing economic system.

To deal with the stress of the population which affects its financial health, the Bank of Canada took the file in hand to maintain financial stability. Here is a complete summary of the general situation:

Pandemic and economy

The pandemic has proven to be a deadly health risk to people around the world and a serious impediment to daily life. The global and Canadian economies have also suffered significant consequences as a result of the situation. Mainly, it affected all work sectors. However, some sectors such as hospitality, energy, services and transport have been hit hard.

The public health sector has taken the following steps to help and stop the spread of the virus:

  • Closure of educational institutions
  • An all-time high emergency alert
  • Physical distancing and home confinement measures

It is wise to say that these actions helped stop the spread of the virus, but impacted economic activities in Canada. Although, yes, the measures taken are temporary to deal with the current situation. However, it will take time to rebalance everything that is happening in the country.

Review of the financial system during the pandemic

In his speech, Tony Gravelle (Deputy Governor) explained how Canada’s central bank watched everything carefully to note changes as the economy slowly began to recover from the aftermath of Covid-19. He also explained that due to the good countermeasures of the Bank of Canada, the country did not experience the severe blow like in other places of the world. Although he mentioned some risks:

  • Financial fear in the general public
  • An increase in household debt and mortgages
  • The Overpriced Hosting Market
  • Unclear report on personal credit debt

He added that the Bank of Canada moved quickly to recover and keep the market functioning. Additionally, the federal government has put in place a variety of support and assistance programs to help millions of families and small and large businesses bridge their financial gaps.

Canada’s financial stability before and after the pandemic

In discussion with the OSC (Ontario Securities Commission), Paul Beaudry said that the Canadian economic structure has suffered severe blows due to Covid-19 restrictions and the pandemic crisis. However, despite the threats, it remained resilient and quite stable throughout, which proves the formidable regulatory framework of the Central Bank of Canada.

He further identified a few things, namely:

  • If financial and economic changes (affected by the pandemic) are not regulated, they can lead to serious financial vulnerability and difficult problems to solve
  • If ignored, they can further aggravate negative pandemic shocks, thus adding fuel to the fire and leading to poor future financial results.

So how did the Bank of Canada play a role in stabilizing the country’s economy and financial structure? Or, what real sectors does it primarily support? Here are the answers :

Bank of Canada takes action to support sectors

Paul Beaudry noted in his discussion that businesses have experienced fewer bankruptcies despite the pandemic. Yet if the situation persists, it can further damage households and small businesses. In Review of the financial system revealed by the bankhere is what they conclude:

1. Household

The bank’s first step was to make credit affordable for all Canadian families. In addition, they helped maintain stability by:

  • The Canada Mortgage Bond (now dormant) funded homeowners in their mortgages to keep things in check
  • Additionally, the bank and the government worked to introduce public relief programs to help residents survive the crisis.
  • The Bank has launched a deferrable loan scheme to help families keep personal debt levels low

Many small and large scale policies have been introduced to help Canadian families bring positivity and optimism to successfully weather the pandemic.

2. Business

The commercial industry is the most affected sector, including transport, tourism, local food, etc.

  • The Bank of Canada has teamed up with officials to send government-backed wages to struggling businesses
  • CEBA (Canada Business Emergency Account) offered subsidized loans and financing to help small business owners
  • CECRA (Canada Emergency Commercial Rent Assistance) and CERS (Canada Emergency Rent Subsidy) have also helped the badly affected food and travel sectors.

The bank cut the borrowing rate to help businesses with cash flow and interest. It also introduced an asset program which introduced the lowest possible interest rates on existing business loans.

3. Financial market

The main objective of the bank was to support the economy by transmitting the policies and programs introduced to the lowest sector.

  • A short-term borrowing program has been put in place to ensure the smooth functioning and efficiency of market liquidity
  • The PBPP (Provincial Bond Purchase Program) enabled funding from the provincial government to support the proper functioning of the financial market
  • Under GBPP (Government of Canada Bond Purchase Program), the Bank of Canada purchased government bonds in the secondary market to help support the country’s economy and financial situation

All the policies and approaches undertaken have played an important role in the resilience of Canada’s financial structure. He also backed the monetary stimulus that kept the economy strong even during the pandemic.

Conclusion

The vulnerability and failing threat to the Canadian economy was high during the pandemic. However, thanks to the early actions of the Bank of Canada and government strategies, we survived the deadly Covid-19 without falling. Additionally, the Deputy Governor says the bank will continue to scan for vulnerabilities in the system to take on-site action if needed.

Finally, the bank says it’s good to focus on Canada’s economic future, but neither can the current crisis be ignored just because the right steps have been taken to combat the pandemic.

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Don F. Davis