Evidence of meeting #31 for Public Accounts in the 45th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was losses.
A video is available from Parliament.
Conservative
The Chair Conservative John Williamson
Thank you.
This brings us to the end of our first hour.
Our witnesses are—
Conservative
The Chair Conservative John Williamson
No. I'm going to keep moving. I'll come back to you.
We can discuss this further. The meeting is not over.
I'm going to excuse our witnesses and suspend for about five minutes, and then I'll talk to you, Monsieur Lemire.
Mr. Lemire, we can discuss this if you have any questions. We are going to suspend for five minutes before the second hour of our meeting.
Bloc
Sébastien Lemire Bloc Abitibi—Témiscamingue, QC
Before sending anything to the House, we need to clarify access to information that the committee wishes for the Office of the Auditor General, particularly in relation to Crown corporations, expanded powers for the Auditor General and how the Auditor General can obtain documents faster. I think our report to the House should have a small footnote to underscore the importance of this issue.
Conservative
The Chair Conservative John Williamson
Maybe we’ll do that, but that’s a separate issue. We can speak about it, but not right now.
This meeting is suspended.
Conservative
The Chair Conservative John Williamson
I'll bring this meeting back to order.
Pursuant to Standing Order 108(3)(g), the committee resumed consideration of the Public Accounts of Canada 2024 and Public Accounts of Canada 2025, referred to the committee on Tuesday, December 17, 2024 and Friday, November 7, 2025.
I'd like to welcome our witnesses for the second hour from the Bank of Canada.
Thank you for coming in. Thank you for your patience. We're running a bit behind because of some votes today.
We have Ms. Alexis Corbett, chief operating officer of the Bank of Canada, and Ms. Coralia Bulhoes, managing director and chief financial officer.
Ms. Corbett, you have approximately five minutes—I'm not too heavy with the gavel—for any opening remarks you'd like to share with us.
Alexis Corbett Chief Operating Officer, Bank of Canada
Thank you, Mr. Chair and honourable members for the opportunity to appear.
My name is Alexis Corbett, and I am the chief operating officer of the Bank of Canada. I oversee the bank’s corporate administrative functions including human resources, finance, data and technology, premises and security.
I’m here with my colleague Coralia Bulhoes, who is the Bank of Canada’s chief financial officer. Her role is to manage the bank’s finances, ensure accurate financial reporting, and explain our financial results.
Before I address our financial results for the past two years, I want to take a few minutes to set some important context that I believe will help frame our discussion today.
The Bank of Canada’s balance sheet is unique among Crown corporations and financial institutions. The Bank of Canada carries out operations to fulfill its legislative mandate, and these operations have implications that are reflected on our balance sheet. Our legislated goal as central bank is to promote the economic and financial welfare of Canada, and not to maximize our returns.
In normal times, the bank's finances are relatively straightforward. Our primary source of revenue is something called seigniorage. The bank issues banknotes, which is the physical currency you have in your pocket. These notes are a liability on our balance sheet. To balance this liability, we hold assets, primarily Government of Canada securities, which earn interest. That interest income, net of our operating expenses, is our profit. That profit, historically in the range of $1 billion to $2 billion annually, is returned to the federal government as a dividend.
The other major liability you will see on our balance sheet is something called settlement balances. These are the deposits the bank maintains at the Bank of Canada to settle payments at the end of each business day. They keep the Canadian payment system functioning smoothly.
In times of severe economic or financial market stress, the bank has a responsibility to act as a source of stability. In such times, the bank can use a set of extraordinary measures to support the economy and get financial markets functioning effectively again. Decisions about when and how to deploy those measures are made by the bank's governing council. My colleague Coralia and I are not involved in those decisions and we cannot comment on them today. Our job is to translate the impact of these decisions onto our financial statements, according to generally accepted accounting standards.
As part of these extraordinary actions, the bank buys large amounts of assets and pays for those purchases by crediting the settlement accounts of the financial institutions it buys from. This causes settlement balances to increase significantly on our balance sheet, which expands by design.
As I noted, settlement balances are a liability on our balance sheet, and we pay interest on them. When interest rates are near zero, as they were at the beginning of the pandemic, that interest cost is negligible, but when interest rates rise, as they subsequently did, the interest we pay on those balances rises with them. Meanwhile, the assets on the other side of our balance sheet, the bonds we purchased, continue to earn the same fixed interest income they always did. The result is a mismatch. Our interest costs rise faster than our interest income, and we incur losses.
To be clear, these losses do not affect the bank's ability to carry out its mandates. The Bank of Canada cannot become insolvent in the conventional sense. Our operational capacity is not impaired, nor is our ability to carry out monetary policy in the best interest of Canadians. Our balance sheet has been normalizing as the bank returned to normal operations. As a result, the bank returned to profitability in the third quarter of last year.
We are here today to walk you through the numbers, answer your questions and ensure that the committee has a clear and accurate picture of the bank's financial position.
Thank you very much, Chair. We welcome your questions.
Conservative
The Chair Conservative John Williamson
Thank you very much.
I appreciate your comments about being here primarily to talk about the fiscal implications of the bank's position. I understand your inability to speak on matters outside of that matter. You are welcome to highlight that to members if they go into that area.
I appreciate your being here to talk about the finances.
Mr. Deltell, you will go first. You have the floor for six minutes.
Conservative
Gérard Deltell Conservative Louis-Saint-Laurent—Akiawenhrahk, QC
Thank you very much, Mr. Chair. I’m a bit upset with you because you took the words out of my mouth.
Ladies, welcome to this parliamentary committee. Thank you for advising us that you cannot speak to some matters. That is entirely proper. We clearly understand that you are on the operational side and have to live with decisions that are not within your control. However, there are some repercussions.
When the government has a deficit and the debt goes up, and when projections differ, what impact does that have on interest rates and your administrative decisions that result in the policy interest rate that shapes interest rates for all Canadians and Canadian banks?
Coralia Bulhoes Managing Director and Chief Financial Officer, Bank of Canada
Thank you for your question.
That is the precisely the point my colleague was making. As the chief financial officer, my role is to record the transactions made in that regard, but I’m not responsible for that, and I definitely don’t have the expertise to answer your question because that is a matter of monetary policy, which falls under the governor’s authority.
Conservative
Gérard Deltell Conservative Louis-Saint-Laurent—Akiawenhrahk, QC
I understand the areas where you can evaluate and take action. However, there are financial implications when debt and deficits go up.
I will take a case that does not reflect the current reality. If there is a $10 billion deficit during the year, how does that impact the Bank of Canada’s operations and the printing of money? A lot of things are now done virtually, but money is still printed.
Managing Director and Chief Financial Officer, Bank of Canada
When the Bank of Canada has losses in its financial statements, that has an impact on the financial statements of public accounts because the bank's results are consolidated in the public accounts. It's important to note that the bank's losses do not entail the transfer of funds from the government to write off the losses. However, the bank temporarily holds the monies it would normally transfer to the government in times of surplus.
Since the second quarter of this fiscal year, the bank has once again started to run a surplus, and that surplus is used to offset the losses accumulated in our books, and as you have noted, these losses amount to approximately $10 billion.
We have prepared projections based on market predictions of interest rates. Based on this information, we project that we will be able to offset all the accumulated losses by mid-2030. Starting from the second half of 2030, we should be able to remit the funds back to the receiver general, as we have done in the past.
Conservative
Gérard Deltell Conservative Louis-Saint-Laurent—Akiawenhrahk, QC
We understand that the pandemic caused significant disruptions around the world in the 2020s. We clearly understand that massive borrowing resulted in massive spending and deficits. No one could have predicted that scenario.
Have all the losses stemming from COVID‑19 been offset, as you say, because we're starting to see the first quarterly profits?
Managing Director and Chief Financial Officer, Bank of Canada
They have not been fully offset, but our projection shows that all of them will be offset by the first half of 2030. That's our projection, but obviously, this can change because it is based on assumptions about market rates of interest.
Conservative
Gérard Deltell Conservative Louis-Saint-Laurent—Akiawenhrahk, QC
In normal times, does the bank have a strategy to avoid this type of situation? We do understand that there was a pandemic, as I said; however, we can see that this has taken a long time. There was also an unhealthy practice of running compulsive deficits. Does the bank have any safeguards to avoid incurring similar losses in the coming years?
Managing Director and Chief Financial Officer, Bank of Canada
Yes, indeed. The bank has returned to normal operations affecting its balance sheet. The bank has introduced a strategy to ensure that henceforth, interest rates and the duration of investments on our books match the interest rates and the duration of liabilities. Having a balance will help us avoid an imbalance, similar to the one that has resulted in losses in the past.
Conservative
Gérard Deltell Conservative Louis-Saint-Laurent—Akiawenhrahk, QC
What are the direct impacts on the Bank of Canada when deficits are way higher than projected?
Managing Director and Chief Financial Officer, Bank of Canada
By virtue of its mandate, the bank can continue to operate. There is no impact on the bank's operations or ability to fulfill its obligations.
Nonetheless, we will have to wait for a while to generate surpluses to offset this loss.
Conservative
The Chair Conservative John Williamson
Thank you very much.
Next up is Mr. McKinnon.
You have the floor for six minutes, please.
Liberal
Ron McKinnon Liberal Coquitlam—Port Coquitlam, BC
Thank you, Mr. Chair.
You mentioned that the bank cannot go insolvent. When you spend more than you bring in, does that mean you borrow money from the receiver general? Is that what I heard?
Managing Director and Chief Financial Officer, Bank of Canada
No. In fact, the government does not inject funds into the Bank of Canada. We are an autonomous organization. We have the losses in our books until such point that the surpluses that we generate—which we started to generate in the second quarter of this year—will be used to offset those accumulated losses. What I was saying is that, by mid-2030, all of those accumulated losses will be offset. After they are offset, we will resume remittances to the receiver general for Canada.
That being said, the mandate of the bank is not affected. As my colleagues said, the bank's mandate in terms of the economy and the financials of the country continues. However, there is a question of the timing of when we are able to resorb or offset those losses, based on the financial results of the bank.
Liberal
Ron McKinnon Liberal Coquitlam—Port Coquitlam, BC
You are in a unique position, obviously.
I'm interested to hear this: If you spend more than you earn but are not borrowing money, how do you close that gap in the interim?
Managing Director and Chief Financial Officer, Bank of Canada
It's important to know that in normal times the Bank of Canada prints money. The proceeds from those banknotes that we put out in the market we use to invest, and we generate revenue on those investments that we call “seigniorage”. In normal times, seigniorage is sufficient to pay for all of the bank's operating expenses and to have a surplus that we remit to the receiver general.
Taken in isolation, that is still the case. We still have surpluses generated by the normal activities of the bank. The challenge is that those losses we have are not because we spend more. Those losses were solely generated by the fact that the bank purchased large assets in the market during the pandemic. That was to respond to its mandate in terms of coming in at the pandemic in extraordinary circumstances.
The losses are generated—and solely generated—by the fact that there was a mismatch in the interest rate caused by the fact that the interest rate on the assets that were purchased was a fixed rate with a coupon, and that the liability that matched that is a variable rate. You had stable revenues coming in and the expenses on our liabilities, at the beginning of the pandemic, were really low. You'll remember that interest rates were 0.25%. We had large revenues and small expenses, and we generated large surpluses, about $2 billion more a year in 2020 and 2021, which we remitted to the receiver general of Canada.
In about 2022, interest rates started rising. They went from 0.25% all the way to about 5% in March 2024. When that happened, revenues remained stable, but then the interest expenses went up. That is exactly what caused the losses on our books. We're now back in a situation where revenues are higher than our expenses, and we're now generating a surplus, which is being used to offset those losses that we accumulated.
Liberal
Ron McKinnon Liberal Coquitlam—Port Coquitlam, BC
I guess what I'm hearing—and I'm not sure I'm hearing correctly—is that these losses or gains are just bookkeeping entries. There's no money transfer involved whatsoever.
Managing Director and Chief Financial Officer, Bank of Canada
Exactly. That's very well said.