First the bad news: The Coronavirus is here and it is a significant threat to the health of Canadians. It is already having significant economic impacts reflected in unprecedented stock market gyrations. This virus has struck close to home for the Prime Minister whose wife is ill; but as Justin Trudeau noted in his mid-day remarks, what he and his family are going through is being experienced by many families and will be experienced by many families across Canada.
Now the (relative) good news: Beginning with the Prime Minister’s calm and compassionate remarks today and as reflected in remarks of other officials who followed with more specific information, the government is being guided by the advice of medical experts and will do what it takes to protect individual Canadians and the economy. The Canadian government has stated unequivocally today that it has the will and capacity to respond to the crisis. These responses are being coordinated with other levels of government in Canada and with other world leaders. We expect more coordinated steps by the G-7 in the days now that the United States appears to be engaging seriously. Steps were already taken last week in the US and in Canada to inject additional liquidity into the financial system.
A raft of measures were announced by the Government and followed up in announcements at an unprecedented joint news conference early this afternoon by the Minister of Finance, the Governor of the Bank of Canada and the Superintendent of Financial Institutions. In that news conference a significant point was made. While this crisis may remind us of the 2008 financial crisis, our banks stood that test and are even more resilient now. As underscored by Minister Morneau today, Canada has “the strongest and most resilient banking system in the world”.
Below is a list of developments and specific measures announced today. While some of these are logistically necessary in light of the risk of infection, other monetary and fiscal measures are essential to bolster confidence and calm the public in these difficult times. As the Prime Minister said, Canadians need to know that the government will use its power to make sure that individual Canadians and Canadian businesses have the support they will need:
- The Department of Finance will be establishing a $10B credit facility program to support small and medium-sized businesses. This will be offered through the Business Development Bank of Canada (BDC) and Export Development Bank of Canada (EDC).
- The BDC will be offering: small business loans up to $100,000 online in as little as 48 hours from time of approval; working capital loans to bridge cash flow gaps; and purchase order financing. Further details on the BDC program can be found here: https://www.bdc.ca/en/pages/special-support.aspx?special-initiative=covid19
- Further details on the EDC program will be posted here: https://www.edc.ca/
- The Bank of Canada has reduced the key overnight lending rate to 0.75%: https://www.bankofcanada.ca/2020/03/bank-of-canada-lowers-overnight-rate-target-to-%c2%be-percent/
- The Bank of Canada will also be introducing a Bankers’ Acceptance Purchase Facility. The Bankers’ Acceptance market is one of Canada’s core funding markets and a key source of financing for small- and medium-size corporate borrowers: https://www.bankofcanada.ca/2020/03/bankers-acceptance-purchase-facility/
- OSFI is lowering the Domestic Stability Buffer by 1.25 points effective immediately. The new DSB requirement will now be set at 1%. This will increase banks’ lending capacity by $300B to increase credit to the economy. OSFI is encouraging banks to use these funds. The DSB will not increase for at least 18 months and OSFI will continue to review the buffer in case a further reduction is needed.
- All OSFI consultations are being suspended, including the consultation on changes to the mortgage stress test.
- All major banks have made a commitment to the Minister of Finance to support businesses and individuals through these times in a responsible, fair and compassionate way.
- A further significant and “powerful” stimulus package will be released next week aimed at individual Canadians to ensure that they have access to financial support to take care of their families. We expect these measures will address unemployment insurance, critical care support, tax relief and more.
Beyond these new financial measures, Canada’s Parliament also decided today to suspend its sitting until April 20th due to the ongoing COVID-19 concerns. Before its suspension, the House of Commons and Senate took a series of actions to ensure the continuance of government:
- Parliament passed Bill C-12, An Act to amend the Financial Administration Act (special warrant), which will be used by the government to obtain funds that are needed for the public good while Parliament is suspended. The Bill makes it possible for the core operations of government to continue even though Parliament is not sitting and the normal supply process has been interrupted.
- The Auditor General will oversee government spending while the House is suspended.
- The federal Budget has been delayed from March 30th and will be presented at a later date (TBA).
- The House of Commons and Senate approved the new NAFTA agreement before suspending their sitting.
This crisis will pass and Canada will pass the test. It will be an expensive effort, but reflective of our values as a nation.
For more information, please contact:
Barry Campbell: barry@campbellstrategies.com T: 416-368-7353 x 101