The Bank of Canada has included US dollar-denominated Canadian covered bonds in an expansion of foreign currency collateral eligible for its Standing Liquidity Facility (SLF).

The Canadian central bank announced the move on Tuesday as part of changes to the facility aimed at supporting the forthcoming introduction of a new payment system, Lynx, which is replacing the country’s large value transfer system (LVTS).

The US dollar-denominated Canadian covered bonds are being added alongside US-dollar denominated securities issued or guaranteed by Canada’s federal and provincial governments and certain other domestic and foreign public sector entities. Previously, the only non-Canadian dollar securities that were eligible were US Treasuries, while only covered bonds issued in Canadian dollars were eligible.

The addition of US dollar-denominated Canadian covered bonds to the Bank of Canada’s SLF-eligible collateral is a further step in the embedding of the asset class in the country’s financial system, after the authorities, for example, last year included covered bonds in their crisis support measures.

Sixteen banks are participants in the current system, LVTS, mostly Canadian institutions but also a few large foreign institutions, such as Bank of America and BNP Paribas. The new rules will apply in respect of LVTS until Lynx is introduced.

The expansion of eligible collateral is one of a variety of measures being taken to support the introduction of the new payments system.