Canadian balance sheet shrinks as liquidity programs expire

The Bank of Canada's balance sheet shrank by C$7.2 billion ($7.2 billion) last year after expanding by C$24.7 billion in 2008, its Annual Report, out Thursday, revealed.

The central bank said that the size of its balance sheet fell from C$78.6 billion to C$71.4 billion as of the end of 2009.

The figures point to the degree to which the Canadian financial system has normalised following the financial crisis. The central bank closed some of its crisis-fighting open-market operations last autumn as financial markets became more liquid. In September, the central bank announced that both its Term Purchase and Resale Facility for Private Sector Instruments and its Canadian-dollar Term Loan Facility would expire in late October 2009 as part of the Medium-Term Plan to stabilize the financial system. In addition, weekly regular term purchase and resale operations were moved to a biweekly schedule and effective 19 January 2010, to a monthly schedule. The C$9.9 billion decline in securities purchased under resale agreements was partially offset by the central bank's C$2 billion investment in treasury bills.

The results are a turnaround from the C$24.7 billion expansion recorded for 2008 as the central bank responded to the global financial crisis.

Meanwhile, the profit for 2009 was C$1.3 billion, about C$508m less than the amount recorded in 2008. This was largely due to a 23% decline in Treasury bill revenue, C$487m less than 2008, as yields fell on short-term investments and a shrinking average Treasury bill portfolio weighed on the figures. Operating expenses fell by C$10m in 2009 to C$366m for the year as expenses on banknote research, production, dropped C$15m because of a lower volume of notes printed in 2009.