Bank of Canada and OSFI Tell Lenders Not to Fear Drawing on the Standing Liquidity Facility

What happened

The Bank of Canada and the Office of the Superintendent of Financial Institutions, the country's banking regulator, issued a joint statement on Tuesday, September 29, 2026, urging financial institutions to use the Standing Liquidity Facility for overnight liquidity whenever they need it, and telling them not to worry that drawing on the facility might be read by markets as a sign of financial distress. The message was delivered by Bank of Canada Deputy Governor Toni Gravelle at a Bloomberg conference in New York, where he said the central bank views use of the facility as routine rather than exceptional, according to wire copy carried by The Globe and Mail. "We view an institution's use of the SLF for overnight liquidity as a normal part of day-to-day liquidity management, not as an exceptional event or a sign of stress," Gravelle said. The statement was published from Ottawa and dated Tuesday, September 29, 2026, roughly four hours before the coverage snapshot was taken.

The Standing Liquidity Facility operates within the Bank of Canada's Lynx high-value payment system, the plumbing through which large Canadian payments are settled. It provides participating financial institutions with fully secured intraday and overnight credit, allowing them to settle payments during the day and at end-of-day operations. Under normal arrangements, institutions settle their end-of-day payments from reserve buffers held at the central bank, money that could otherwise be released into the market to improve the efficiency of the payment system. The Bank of Canada and OSFI said in the joint statement that use of the facility by Lynx participants is "consistent with routine liquidity management activities," framing the credit line as an ordinary tool rather than a lifeline that carries a stigma.

Gravelle paired the reassurance with an operational announcement: the central bank is updating its repo clearing infrastructure with a new tri-party platform. The stated purpose of the upgrade is to develop the term repo market in Canada and to attract new participants, including large corporate treasuries, into a market that has historically been dominated by dealers and banks. The Bank of Canada's own framing, repeated in the remarks, is that repo markets are crucial to the functioning of the government bond market and a key source of short-term funding, but that their size and widespread use mean they can transmit financial stress quickly if conditions deteriorate. The remarks were also carried by Reuters, whose page returned an access error to readers but whose wire copy formed the basis of the Globe and Mail's report.

Why it matters

Stigma is one of the oldest problems in central banking. When banks fear that borrowing from the official liquidity backstop will be interpreted as a signal of weakness, they delay drawing on it, and the delay can turn a manageable funding squeeze into a genuine crisis. The joint statement from the Bank of Canada and OSFI is an attempt to defuse that dynamic before it appears, by declaring in advance that overnight use of the Standing Liquidity Facility is a normal part of liquidity management rather than a red flag. The involvement of OSFI, the prudential regulator, matters here: a statement from the central bank alone might be read as encouragement, but a joint statement from the supervisor tells institutions that their regulator will not view facility use as a supervisory concern.

The repo announcement points in the same direction. Canada's repo market is a key source of short-term funding and a pillar of government bond market functioning, and the Bank of Canada has been explicit that stress can travel through it. A new tri-party platform, designed to widen participation to corporate treasuries and other non-dealer players, would broaden the base of the market and, in principle, make it more resilient. The remarks also sit against the Bank of Canada's own stated concern, set out in the same speech, that the size and widespread use of repo markets mean they can transmit financial stress if conditions deteriorate, which is precisely the risk a wider, deeper term repo market is meant to reduce.

How it is being covered

The coverage figures come from the Ground News snapshot taken with the findings: the story is being carried by 8 sources, with 7 of them rated, split 0 percent left, 67 percent centre and 33 percent right, and flagged as a blindspot because no left-rated outlet is covering it. Factuality ratings among the rated sources are strong, with 4 of 6 rated high and 2 very high. The story is running as a business and markets item on the centre and right of the spectrum, with the left-rated press absent from the coverage so far.

What to watch

Three things follow from the statement. First, whether Canadian financial institutions actually change their behaviour and use the Standing Liquidity Facility more readily at end of day, which would show up over time in the Bank of Canada's operational data on facility take-up and reserve balances. Second, the details of the new tri-party repo platform: its launch timeline, its technical design, and which new participants, including large corporate treasuries, choose to join the term repo market once it is available. Third, whether the joint Bank of Canada and OSFI framing is echoed in future supervisory guidance, which would entrench the message that facility use carries no regulatory penalty. Any future funding-market stress in Canada would be the real test of whether the stigma message took hold.

By the numbers

Source snapshot