On 13 March the government announced the creation of a CA$10 billion Business Credit Availability Program (BCAP) to support financing in the private sector through the Business Development Bank of Canada (BDC) and Export Development Canada (EDC). Under this program, BDC and EDC will increase their cooperation with private sector lenders to coordinate financing and credit insurance solutions for Canadian businesses.
The government also announced a series of programs to help Canadian individuals and businesses.
Canada Emergency Response Benefit
The Canada Emergency Response Benefit (CERB) will provide a taxable benefit of $2,000 every four weeks up to 24 weeks to eligible workers who have stopped working or whose work hours have been reduced due to COVID-19.
- The Canada Child Benefit was increased by $300 per child.
- Canadian businesses and individuals were given until 30 September to file their 2019 income tax returns, with no penalty or interest.
- The government encouraged lenders to allow homeowners facing financial hardship to defer paying their mortgage for up to six months.
- The government will provide up to $3 billion to increase wages for low-income essential workers.
- The government will provide a one-time special payment through the Special Goods and Services Tax credit for low and modest-income families, totaling about $400 for individuals and $600 for couples.
In order to help employers avoid layoffs, the government will provide an Emergency Wage Subsidy to cover a portion of each employee's wages. It also provided a temporary three-month 10% wage subsidy to enable employers to reduce payroll deductions.
Canada Emergency Business Account
The Canada Emergency Business Account (CEBA) will provide interest-free loans of up to $40,000 to small businesses and nonprofits to help them cover their operating expenses.
The Business Credit Availability Program will guarantee 80% of new term loans of up to CA$6.25 million for small and medium-sized enterprises for operating credit and cash flow.
Regional Relief and Recovery Fund
The Regional Relief and Recovery Fund (RRRF) will provide nearly CA$962 million to help businesses and organisations in manufacturing, technology and tourism that have been unable to access other support measures.
Canada Emergency Commercial Rent Assistance
Canada Emergency Commercial Rent Assistance (CECRA) will provide relief for landlords to enable them to reduce their rents by at least 75% from April through August for their small business tenants. The fund will cover 50% of the rent, with the property owner forgiving at least 25% and the tenant paying up to 25%.
Mid-Market Financing Program
Business Development Canada's (BDC) Mid-Market Financing Program will provide commercial loans of between CA$12.5 million and CA$60 million to medium-sized businesses whose credit needs exceed what is available through the Business Credit Availability Program and other programs.
Export Development Canada (EDC) sponsored the Mid-Market Guarantee and Financing Program, which will guarantee 75% of new operating credit and cash-flow loans to companies with revenues of between CA$50 million and CA$300 million. The loans are available to exporters, international investors and businesses that sell their products or services within the country.
Large Employer Emergency Financing Facility
The Large Employer Emergency Financing Facility (LEEFF) provides bridge financing to Canada's largest employers whose needs are not being met through conventional financing.
The Canada Mortgage and Housing Corporation said it will purchase up to CA$150 billion of insured mortgages through an Insured Mortgage Purchase Program. The goal is to provide long-term funding to enable banks and mortgage lenders to continue lending to Canadian consumers and businesses.
Bank Of Canada
On 4 March 2020 the country's central bank, the Bank of Canada (BOC), lowered its target for the overnight lending rate by 50 basis points to 1.25%. The rate is what private banks charge each other for overnight loans. On 13 March, the BOC lowered its target an additional 50 basis points to 0.75%. Then, on 27 March, the BOC further lowered the rate by 50 basis points to 0.25%, which it considers to be its "effective lower bound," or basically as low as it can go.
Commercial Paper Purchase Program
The Commercial Paper Purchase Program (CPPP) is designed to "alleviate strains in short-term funding markets" for businesses. Over the next 12 months, the BOC said it will buy commercial paper, including asset-backed CP, in both the primary and secondary market issued by Canadian companies, municipalities and provincial agencies. It also said it would begin buying Canadian government securities of all maturities on a daily basis in the secondary market, beginning with a minimum of CA$5 billion per week.
Provincial Money Market Purchase Program
On 24 March the bank announced a new Provincial Money Market Purchase (PMMP) program that will purchase money market securities directly from the country's provincial governments. Under the program, the bank will purchase up to 40% of each issue.
Standing Term Liquidity Facility
On 30 March the bank announced it had launched a new Standing Term Liquidity Facility (STLF) in which eligible financial institutions can borrow from the BOC; the banks can pledge a wide variety of collateral, including mortgages. The goal of the program is to promote lending and to support liquidity in the financial system.
On 15 April the Bank announced the development of a new CA$50 billion Provincial Bond Purchase Program to supplement PMMP. It also announced a new CA$10 billion Corporate Bond Purchase Program, in which it will buy investment grade corporate bonds in the secondary market.
Coordination With Other Central Banks
On 15 March the BOC, along with the central banks of the U.S., U.K., Japan, Switzerland and the eurozone, announced a "coordinated action" to enhance liquidity in the U.S. dollar-denominated swap market by reducing interest rates on dollar-based swaps by 25 basis points. They also agreed to begin the weekly offering of 84-day U.S. dollar swaps in their respective jurisdictions, in addition to the one-week operations they already offered.
On 13 March the Office of the Superintendent of Financial Institutions (OSFI), Canada's bank regulator, lowered the "Domestic Stability Buffer" for the nation's banks by 1.25% of their risk weighted assets to 1.0%. The DSB was previously set at 2.25% of risk weighted assets. Essentially, the move reduces the amount of capital banks must hold on hand to protect against losses, freeing up more money for them to lend.
The agency said the action will support more than CA$300 billion of additional lending capacity by banks. It also said it "expects" that the banks will not use the money to increase dividends to shareholders or buy back shares and called on banks to halt such payments "for the time being." OSFI also suspended consideration of a proposed benchmark on the minimum qualifying rate for uninsured mortgages until further notice.
Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…