Changes will allow Bank of Canada to temporarily retain earnings rather than remit them to the government, for the purpose of covering losses
to retain earnings to help it recoup billions of dollars in losses that the central bank expects to report over the coming years as a result of its pandemic-era bond-buying program.
The legislative changes “will allow, on a temporary basis, the Bank of Canada to retain earnings rather than remit them to the government, for the purpose of covering losses,” Mr. Macklem told reporters at a news conference after the bank’s latest interest-rate decision. Up until last year, the Bank of Canada always earned a profit. In normal times, its main liability is the physical cash that circulates through the Canadian economy. On the asset side of its balance sheet, it holds government bonds.
The bank paid for the bonds by creating deposits for commercial banks, known as settlement balances. These are essentially reserves that commercial banks keep at the central bank, and they ballooned from around $250-million before the pandemic to a peak of around $390-billion in 2021. Mr. Macklem has played down the situation, referring to it as mostly an accounting issue. “None of this has any impact on monetary policy, we don’t run monetary policy with a profit motive in mind,” he said on Wednesday.
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