Follow the liquidity: Monetary policy, spatial inequality and the Bank of Canada's emergency COVID-19 corporate debt programs

Abstract

In a financial crisis, maintaining liquidity in the economy is a central concern of monetary policymakers seeking to stave off frozen financial markets. In such moments, central bank actions influence private markets in particularly visible ways. In this paper we analyze how the public sector provides liquidity to the financial sector in moments of crisis, arguing that liquidity provision and risk backstopping are crucial dynamics in the public sector's support of private markets, and can reproduce patterns of spatialized inequality. We use the case study of the Bank of Canada’s (BoC) response to the COVID-19 crisis to examine the geographical impacts of the the BoC's asset purchase programs, which helped entrench an unequal status quo in the Canadian economy. We analyze two emergency response programs, the Corporate Bond Purchase Program and Commercial Paper Purchase Program, and find disproportionate support for certain regions (Alberta, Quebec, Ontario) and sectors (finance, and fossil fuel firms). Through a futher analysis of the balance sheets of Daimler Canada Finance Inc., whose debt the BoC disproportionately purchased, we demonstrate how relational methods of financial analysis can allow geographers to better understand the functioning of power in the financial system beyond what can be revealed by following distinct sums of money. A close read of these balance sheets reveals that “neutral” monetary policy hides distributional effects of liquidity provisions and illustrates profoundly spatial dynamics that contribute to the entrenchment of financial power and rentiership in the Canadian economy and maintain geographical inequalities in the name of supporting the economy through crisis.