What is a liquidity injection?
Central banks can use their financial clout to try to get money flowing to the banks and their customers. In a liquidity injection, they make money available for banks to borrow, although the financial institutions have to post securities as collateral to get it. Last week the Bank of Canada said it would make $20-billion available to Canadian banks, and on Monday it said it would let banks pledge their troubled asset-backed commercial paper assets as collateral. This will give some banks more flexibility. One problem, said TD Bank chief economist Don Drummond, is that the central bank’s injection is just for the short term – Bank of Canada loans usually have to be repaid within 90 days. But the demand from customers is trending towards longer-term loans – especially from corporations who can’t get money any other way – so the central bank money won’t help much on that score.
