March 21, 2018 / 7:40 PM / 6 months ago

Bank of Canada sets committee to create risk-free rate benchmark

OTTAWA (Reuters) - The Bank of Canada said on Wednesday it would establish a working group to consider the creation of a new risk-free Canadian dollar interest rate benchmark that is reliable and resilient to any market stress.

FILE PHOTO - A sign is pictured outside the Bank of Canada building in Ottawa, Ontario, Canada, May 23, 2017. REUTERS/Chris Wattie

The creation of the benchmark, which would exist alongside the Canadian Dollar Offered Rate (CDOR), Canada’s version of LIBOR, echoes efforts in other countries to develop new risk-free or nearly risk-free reference rates.

The central bank said the Canadian Alternative Reference Rate Working Group (CARR) would be sponsored by the Canadian Fixed-Income Forum and co-chaired by a senior representative of the bank and a member of the forum.

“To maximize transparency and achieve broad consensus on the working group’s proposals, feedback will be sought from a wide range of stakeholders through targeted industry round tables and the publication of consultation papers,” the bank said in a statement.

The group will also explore possible enhancements to the existing Canadian overnight risk-free rate, the Canadian Overnight Repo Rate Average (CORRA), to consider ways to broaden the volume of trades used to calculate the rate, the bank said.

CDOR is a rate at which banks will lend to corporate clients using bankers’ acceptances, a short-term credit instrument. It is calculated daily by Thomson Reuters based on rate submissions from banks.

Reporting by Fergal Smith in Toronto and Andrea Hopkins in Ottawa; Editing by Peter Cooney

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