Large Value Transit System (LVTS)

Money Fact Sheet #11

Provided by The Bank of Canada and brought to you by www.BaileyBusinessFunds.com

 

Large Value Transit System (LVTS)

THE LARGE VALUE TRANSFER SYSTEM, or LVTS, is an electronic wire system that lets financial institutions and their customers send large payments securely in real time, with certainty that the payment will settle. It was launched in 1999.

Fourteen institutions currently take part directly in the LVTS, including the Bank of Canada. The LVTS was processing an average of more than 14,000 payments a day by 2001, worth more than $100 billion.

The LVTS processes Canada's large and time-sensitive payments, including Government of Canada payments. In dollar terms, the LVTS handles the vast majority of payment flows that take place every day. More information on Payment, Clearing and Settlement Systems

The Bank of Canada's Role in the LVTS

The Bank of Canada is legally responsible for overseeing the safety of the LVTS. The Bank holds collateral from other LVTS members, which it would use to settle the LVTS in the unlikely event that one of the institutions could not meet its obligations. This ensures that Canada's financial system is not put at risk.

The LVTS also provides the setting in which the Bank of Canada conducts its monetary policy.

Here's how it works.

Throughout any given day, the LVTS members send payments back and forth to each other. When the transactions are added up at the end of the day, some of these financial institutions may end up needing money, while others may have funds left over. Every day, LVTS members borrow and lend money to each other on a one-day basis, to cover their net LVTS positions. The interest rate paid on these and other overnight loans is called the "overnight rate."

The Bank of Canada has a target for the overnight rate, which tells LVTS members and others in the overnight market the target rate it wants to see for overnight loans. Changing the target rate is the Bank's most important monetary policy tool and is the way that it influences Canada's economy.

July 2001

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