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The Bank of Canada provides the following services to certain clearing and settlement systems and their participants:
The Bank of Canada provides collateralized advances to direct participants in the LVTS through its Standard Liquidity Facility. These virtually automatic advances provide participants with access to a reliable backup source of liquidity should they need to fund their end-of-day payment obligations, thus helping them to transfer value efficiently among themselves during the day.
An LVTS advance is a secured loan provided by the Bank of Canada to cover a net amount owed by the institution in its end-of-day LVTS position. The interest rate on the one-business-day loan is set at the upper limit of the Bank of Canada's operating band for the overnight interest rate: the Bank Rate.
See also the Bank of Canada's policies governing its activities as lender of last resort.
With the Bank acting as settlement agent, so-called "banker risk" is eliminated for CDSX and its participants. Banker risk refers to the possible failure of a private sector institution acting as settlement agent for a clearing and settlement system, which would then expose the system participants and the operator to credit risk. The Bank of Canada incurs no liquidity or credit risk from carrying out this function because the LVTS is used to make end-of-day CDSX payments, and the Bank will make an LVTS payment on behalf of CDS only if there is a sufficient balance in CDS's account to cover the amount of the payment.
The Bank of Canada also acts as banker for the CLS Bank, by providing it with a settlement account which it uses to make and receive Canadian-dollar-payments arising from the continuous linked settlement service. In addition, since the CLS Bank is not a member of the Canadian Payments Association, the Bank of Canada makes and receives payments through the LVTS on its behalf. The Bank of Canada has extended its overnight operations to provide these services during the CLS Bank's processing period.