Ottawa has $102B rainy day fund

Paranoia over threat of cyberattack sees Ottawa stash away enough emergency cash to survive for at least a month

OTTAWA — The federal government committed hundreds of millions of dollars in its recent budget to help reinforce Canada’s cyber defences — but if the effort fails to prevent a major attack, Ottawa can always turn to its little-known $102-billion emergency stash.

The rainy day fund of highly liquid assets is available to keep the government running for at least a month should the country ever find itself confronted by a severe crisis, such as a cyberattack that impairs access to financial markets.

The assets are held in what the government calls its “prudential liquidity plan,” part of which can be compared to a chequing account that offers Ottawa quick access to the funds, if necessary.

A recently released briefing note for Finance Minister Bill Morneau explained details about the unheralded plan.

“Canada holds liquidity reserves as a hedge against highly unlikely, but potentially disruptive stress events,” said the August 2017 memo, obtained by The Canadian Press via the Access to Information Act.

“The (prudential liquidity plan) framework ensures that the government holds sufficient high quality liquid assets to cover a ‘survival horizon’ of at least one month.”

The nest egg’s contents are made up of about $2 billion worth of cash balances at the Bank of Canada; $10 billion in cash balances that are auctioned off to financial institutions for durations of typically less than one week so they generate returns; a callable demand deposit of $20 billion at the Bank of Canada; and about $70 billion of foreign reserve assets from Ottawa’s exchange fund account.

In last month’s budget, Ottawa earmarked $507.7 million over five years to strengthen the country’s protections and response capabilities in the event of an cyberattack. The investments will support a national cybersecurity strategy, a new Canadian Centre for Cyber Security and creation of a national cybercrime co-ordination unit by the RCMP. Morneau’s plan also dedicated $2.2 billion over six years to improve the government’s IT services and infrastructure, an investment that includes support for efforts to proactively address cybersecurity threats.

Bank of Canada governor, Stephen Poloz, has described a severe cyberattack as his worst nightmare. Poloz has said he struggles to even imagine what such an event — and the extent of the resulting damage — might look like.

Canada has long maintained a liquidity management framework but, after the events surrounding the financial crisis of 2008, prudential liquidity was highlighted as a key issue, especially for financial institutions. Ottawa decided it was important for the government, too, and introduced the current framework in its 2011 budget. Ottawa calibrated its one-month target to be similar to international guidelines for large banks that followed the financial crisis.

The briefing note to Morneau outlined two objectives of the prudential liquidity plan.

The first is to ensure the government can continue operations and meet its payment obligations, even during stress events. The second objective for the plan is that its existence is intended to support market confidence in the government’s debt program.

Provinces, including Ontario and Quebec, have formalized their own liquidity reserves. Other countries, including the U.S., maintain similar prudential liquidity reserves, it said.