The Canadian Central Bank- Bank of Canada

Bank of Canada or Banque du Canada located in Ottawa is the Canadian central bank. Which was created by Bank of Canada act in 1934. It influences the value of 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 banking industry is based upon in fractional reserve banking. That means that banks can lend money more than 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 will become insolvent ( again hypothetically speaking). The insolvent bank then has to go to someone who can lend it money in those dire times. That, in Canada would be Bank of Canada that is why most of the central banks are called Lender of Last Resort.