Supporting the economy and the financial system
To fulfill its mandate, the Bank has access to several tools to support the Canadian economy and financial system. When key financial markets became strained in March2020 due to the COVID‑19 pandemic, the Bank responded by introducing several programs to provide liquidity and maintain market functioning. As markets gradually improved, most facilities and operations were suspended, discontinued or scaled back, and the Bank shifted the use of its tools, primarily to quantitative easing. As the economy rebounded, the Bank ended quantitative easing in 2021 and moved into a reinvestment phase. In 2022, the Bank stopped reinvestment and began quantitative tightening, where maturing bond holdings are not replaced. This has continued through the third quarter of 2023. Refer to the Bank’s website for the relevant press releases and market notices and more information on these measures.
The Bank incurred net losses of $1,459million and $4,461million for the three- and nine-month periods ended September30,2023, respectively, primarily because the interest incurred on deposits was greater than the interest earned on investments. The interest expense on deposits was higher as a result of increases in the Bank’s policy interest rate, which increased from 0.25% in the first quarter of 2022 to 5.00% in the third quarter of 2023. In time, the Bank will return to a net income position. The net losses do not affect the Bank’s ability to carry out its mandate.
Interest revenue depends on market conditions, their impact on the interest-bearing assets held on the Bank’s balance sheet, and the volume and blend of these assets. The Bank earns interest on its investments in Government of Canada securities, on SPRAs (if any) and on assets acquired through large-scale asset purchase programs. In the third quarter and the first nine months of 2023, interest revenue decreased by $152million (or 14%) and $404million (or 12%), respectively, compared with the same periods in 2022. This decrease was driven by the Bank’s lower average holding of interest-yielding investments during the period, which was offset by an increase in the average yield on investments.
Interest expense consists mainly of interest incurred on deposits held by the Bank. During the third quarter and the first nine months of 2023, the interest expense increased by $793million and $4,229million, respectively, compared with the same periods in 2022, as a result of rises in the Bank’s policy interest rate. The increase was partially offset by a lower average volume of deposits during the period and by a decrease to 0%, in effect since May2022, in the interest rate paid on Government of Canada deposits.
Operating expenses for the third quarter of 2023 increased by $5million (or 3%) compared with the same period in 2022. This mainly reflects increases of $15million in costs due to timing in bank note production, $2million in costs for premises due to building repairs, and $2million in costs for technology and telecommunications due to the Bank’s focus on its digital transformation and on strengthening its information technology systems. These increases were offset by a decrease of $15million in staff costs, due to a decline in benefit expenses. For the nine-month period ended September30,2023, operating expenses decreased by $17million (or 3%), compared with the same period in 2022.
- Staff costs decreased by $28million (or 10%) compared with the same period in 2022, as a result of the following changes:
- Salary costs increased by $18million (or 10%) as vacancies were filled to deliver the Bank’s core mandates, including the new retail payments supervision mandate, and as progress was made on strategic initiatives. The annual compensation adjustment also contributed to this increase.
- Benefits and other staff costs decreased by $45million (or 44%), mainly due to a decline in the expense associated with the Bank’s defined-benefit plans. This decline was a result of a rise in the discount rates used for their calculation.1
- Premises costs increased by $5million (or 23%) compared with the same period in 2022. The increase was driven by building repairs and alterations.
- Technology and telecommunications costs increased by $4million (or 5%) compared with the same period in 2022. This increase was driven by the Bank’s focus on its digital transformation and on strengthening its information technology systems.
Other comprehensive income (loss) for the nine-month period ended September30,2023, was $92million. It consists of a remeasurement gain of $76million on the Bank’s defined-benefit plans as a result of increases in discount rates,2 offset by a decrease in the fair value of the plans’ assets. It also consists of a $16million increase in the fair value of the Bank’s investment in the Bank for International Settlements.
Comprehensive loss for the nine-month period ended September30,2023, was $4,369million, primarily due to the net loss of $4,461million incurred during that period.
Operational highlights and changes
Changes in personnel, operations and programs have occurred since June30,2023.
Governing Council and Board of Directors
No changes were made to the membership of the Governing Council or Board of Directors during the quarter.
Operations and programs
The Bank announced an increase of 25basis points in the policy interest rate on July12,2023. On September6,2023, and on October25,2023, the Bank announced that it would maintain its policy rate.
Risk analysis
The “Risk management” section of the Bank’s Annual Report 2022 outlines the Bank’s risk management framework and risk profile. This section also reviews the key areas of risk—financial, operational, strategic, and environmental and climate-related. The financial risks are discussed further in the notes to the financial statements of December31,2022, which are included in the Report. Note4 of the condensed interim financial statements for September30,2023, also provides an update on these financial risks. Although the pandemic has triggered more financial risks and volatility than usual involving some of the assets the Bank holds, the risks identified in the Annual Report remain the key ones for the Bank.
