By Steve Scherer and David Ljunggren
OTTAWA, March 29 - The Bank of Canada on Wednesday said it was ready to step in with support if the banking system came under severe strain, but would only offer extraordinary liquidity in extreme cases while at the same time seeking to mitigate moral hazard.
"The Bank's mandate to promote the stability of the financial system means that we're ready to act in the event of severe market-wide stress and provide liquidity support to the financial system," Gravelle said. "If we need to step in again, we will - as we always do - have an eye to mitigating moral hazard," Gravelle said. Moral hazard is when investors feel they can take unusual risks without bearing the consequences if things go wrong.
Gravelle said if there were another massive crisis that the bank could not address through its emergency tools, "we may well be in a 'break the glass' situation ... may resort to large scale Government of Canada bond purchases".
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