DID YOU KNOW ?
The Bank of Canada, located in Ottawa, is the Canadian Central Bank, which was created by Bank of Canada Act in 1934. It influences the value of the Canadian Dollar and the Overnight Lending Rate in Canada. It’s purpose is ” to preserve the value of money by keeping inflation low and stable.”
Today’s banking industry is based upon in fractional reserve banking. That means that banks can lend money more then they have in their reserve. So the reserve ratio is typically 10% to 15%. This fact alone makes all ( most of them- technically speaking ) banks vulnerable to insolvency. Say, if all the creditors, deposit holders, investors, etc. goes to a bank all together, at the same time, to withdraw all the money….the bank would become “insolvent” ( again, hypothetically speaking). The insolvent bank then has to go to someone else who can lend it money in those dire times. That, in Canada, would be Bank of Canada…..and that is why most of the central banks are called Lender of Last Resort.
