WHAT HAPPENS IF A BANK DOES'NT REDUCE ITS LVTS BALANCE TO ZERO? - ProProfs Discuss
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What happens if a bank does'nt reduce its lvts balance to zero?



Asked by Berry, Last updated: Nov 25, 2021

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

Bank of canada rules dictate that if the institution does not reduce their lvts positionto zero, any surpluses will earn an annualized rate of return equivalent to the loweroperating band of the overnight rate of interest, and any deficit will require payment ofan annualized rate of interest equivalent to the upper operating band of the overnightrate of interest. financially speaking, these are poor terms for the institutions inquestion. its much better to loan your surplus at a higher rate of return that marketparticipants are willing to pay than accept what the bank of canada is paying.likewise, its much better to borrow at a lower rate to cover your deficit than pay thehigher rate offered by the bank of canada.
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