GOVERNMENT NOTICES

BANK OF CANADA

FINANCIAL STATEMENTS (YEAR ENDED DECEMBER 31, 2009)

FINANCIAL REPORTING RESPONSIBILITY

The accompanying financial statements of the Bank of Canada have been prepared by management in accordance with Canadian generally accepted accounting principles and contain certain items that reflect best estimates and judgment of management. The integrity and reliability of the data in these financial statements are management’s responsibility. Management is responsible for ensuring that all information in the Annual Report is consistent with the financial statements.

In support of its responsibility for the integrity and reliability of these financial statements and for the accounting system from which they are derived, management has developed and maintains a system of internal controls to provide reasonable assurance that transactions are properly authorized and recorded, that financial information is reliable, that the assets are safeguarded and liabilities recognized, and that the operations are carried out effectively. The Bank has an internal Audit Department whose functions include reviewing internal controls, including accounting and financial controls and their application.

The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal controls and exercises this responsibility through the Audit and Finance Committee of the Board. The Audit and Finance Committee is composed of members who are neither officers nor employees of the Bank and who are financially literate. The Audit and Finance Committee is therefore qualified to review the Bank’s annual financial statements and to recommend their approval by the Board of Directors. The Audit and Finance Committee meets with management, the Chief Internal Auditor, and the Bank’s external auditors who are appointed by Order-in-Council. The Audit and Finance Committee has established processes to evaluate the independence of the Bank’s external auditors and reviews all services provided by them. The Audit and Finance Committee has a duty to review the adoption of, and changes in, accounting principles and procedures that have a material effect on the financial statements, and to review and assess key management judgments and estimates material to the reported financial information.

These financial statements for the year ended December 31, 2009, have been audited by the Bank’s external auditors, KPMG LLP and PricewaterhouseCoopers LLP, and their report is presented herein. The external auditors have full and unrestricted access to the Audit and Finance Committee to discuss their audit and related findings.

Ottawa, Canada, January 22, 2010

M. CARNEY
Governor

S. VOKEY, CA
Chief Accountant

AUDITORS’ REPORT

To the Minister of Finance, registered shareholder of the Bank of Canada (the “Bank”)

We have audited the balance sheet of the Bank as at December 31, 2009, and the statements of net income, comprehensive income, changes in capital and cash flows for the year then ended. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these financial statements present fairly, in all material respects, the financial position of the Bank as at December 31, 2009, and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.

The financial statements as at December 31, 2008, and for the year then ended were audited by Ernst & Young LLP and PricewaterhouseCoopers LLP who expressed an opinion without reservation in their report dated January 23, 2009.

Ottawa, Canada, January 22, 2010

KPMG LLP
Chartered Accountants
Licensed Public Accountants

PRICEWATERHOUSECOOPERS LLP
Chartered Accountants
Licensed Public Accountants

M. CARNEY
Governor

M. L. O’BRIEN, FCA
Chair, Audit and Finance Committee

S. VOKEY, CA
Chief Accountant

W. A. BLACK
Lead Director

On behalf of the Board

(See accompanying notes to the financial statements.)

(See accompanying notes to the financial statements.)

(See accompanying notes to the financial statements.)

(See accompanying notes to the financial statements.)

BANK OF CANADA

Notes to the financial statements

Year ended December 31, 2009

(Amounts in the notes to the financial statements are in millions of Canadian dollars, unless otherwise stated.)

1. The business of the Bank of Canada

The responsibilities of the Bank of Canada (the Bank) focus on the goals of low and stable inflation, financial system stability, a safe and secure currency, and the efficient management of government funds and public debt. These responsibilities are carried out as part of the broad functions described below.

Monetary policy

Contributes to solid economic performance and rising living standards for Canadians by keeping inflation low, stable, and predictable.

Financial system

Promotes a safe, sound, and efficient financial system, both within Canada and internationally.

Currency

Designs, produces, and distributes Canada’s bank notes, focusing on counterfeit deterrence through research on security features, public education, and partnership with law enforcement; replaces and destroys worn notes.

Funds management

Provides high-quality, effective, and efficient funds-management services: for the Government of Canada, as its fiscal agent; for the Bank; and for other clients.

2. Significant accounting policies

The financial statements of the Bank are in accordance with Canadian generally accepted accounting principles (GAAP) and conform to the disclosure and accounting requirements of the Bank of Canada Act and the Bank’s bylaws. The significant accounting policies of the Bank are summarized below. These standards have been consistently applied to both years, unless otherwise stated.

(a) Change in accounting policies

During the year, in accordance with new standards issued by the Canadian Institute of Chartered Accountants (CICA), the Bank adopted the following accounting standards:

Intangible Assets

On January 1, 2009, the Bank adopted CICA Handbook Section 3064, Goodwill and Intangible Assets replacing Section 3062, Goodwill and Other Intangible Assets and Section 3450, Research and Development Costs. This new standard provides guidance for the identification, recognition, and measurement of externally acquired or internally developed intangible assets and requires separate disclosure thereon (note 7). The implementation of this standard has not resulted in any changes to the recognition or measurement of intangible assets. Intangible assets are presented with Property and equipment on the Balance Sheet.

Financial instruments – disclosure and presentation

In June 2009, the CICA issued amendments to CICA Handbook Section 3862, Financial Instruments – Disclosures. The amendments, effective for the years ending on or after September 30, 2009, enhance required disclosures about fair-value measurements, including the relative reliability of the inputs used in those measurements. The amendments also change the definition of liquidity risk and enhance required disclosures of the liquidity risk of financial instruments. Enhanced disclosures under this standard have been incorporated in note 6.

(b) Use of estimates

The preparation of financial statements in accordance with Canadian GAAP requires management to make estimates and assumptions based on information available at the financial statement date. Actual results could differ from these estimates. These estimates are primarily in the area of pension and other employee future benefits and fair values of certain financial instruments and collateral taken.

(c) Revenue recognition

Investments

Interest revenue earned on treasury bills and bonds is recorded using the effective interest method.

Dividend revenue on the Bank for International Settlements (BIS) shares is recorded as dividends are declared.

Realized gains on the sale of treasury bills of Canada are recorded at the time of sale as a reclassification from Other Comprehensive Income and are calculated as the excess of proceeds over the amortized cost.

Other

Interest earned on securities purchased under resale agreements is recorded using the effective interest method.

Other revenue is comprised mostly of interest earned on advances to members of the Canadian Payments Association and is recorded using the effective interest method.

(d) Employee benefit plans

The Bank sponsors a number of defined-benefit plans that provide pension and other post-retirement and post-employment benefits to its eligible employees. The Bank accrues its obligations under these benefit plans and the related costs, net of plan assets. The costs and the obligations of the plans are actuarially determined using the projected benefit method and using management’s best estimate of the expected investment performance of the plans, salary escalation, retirement ages of employees, and expected health-care costs.

The benefit plan expense (income) for the year consists of the current service cost, the interest cost, the expected return on plan assets, and the amortization of unrecognized past service costs, actuarial losses (gains), as well as the transitional obligation (asset). Calculation of the expected return on assets for the year is based on the market value of plan assets using a market-related value approach. The market-related value of plan assets is determined using a methodology where the difference between the actual and expected return on the market value of plan assets is amortized over five years.

The excess of the net accumulated actuarial loss (gain) over 10% of the greater of the benefit obligation and the market-related value of plan assets is amortized over the expected average remaining service lifetime (EARSL) of plan members. Past service costs arising from plan amendments are deferred and amortized on a straight-line basis over the EARSL at the date of amendments.

On January 1, 2000, the Bank adopted the new accounting standard on employee future benefits using the prospective application method. The initial transitional balances are amortized on a straight-line basis over the EARSL, as at the date of adoption.

(e) Translation of foreign currencies

Investment income denominated in foreign currencies is translated at the rate in effect at the date of the transaction.

Assets and liabilities denominated in foreign currencies are translated to Canadian dollars at the rates of exchange prevailing at the balance sheet dates. The resulting gains and losses are included in Other revenue.

(f) Financial instruments

Financial instruments are measured at fair value on initial recognition. Subsequent to initial recognition, they are accounted for based on their classification. Transaction costs are expensed as incurred for all classes of financial instruments. The Bank accounts for all financial instruments using settlement date accounting.

Subsequent to initial recognition, financial assets classified as available-for-sale (AFS) are measured at fair value using quoted market prices or at cost if the instruments are not traded in an active market. Unrealized changes in values of AFS financial assets held at fair value are recognized in Other Comprehensive Income. The Bank’s financial assets designated as AFS consist of the Treasury bills of Canada and Other investments portfolios.

Subsequent to initial recognition, financial assets classified as held-to-maturity (HTM) are measured at amortized cost less any impairment losses using the effective interest method. The Government of Canada bonds portfolio is classified as HTM.

The Bank has not classified any of its financial assets as held-for-trading (HFT).

All other financial assets are classified as loans and receivables. Subsequent to initial recognition, these are measured at amortized cost less any impairment losses using the effective interest method.

Subsequent to initial recognition, financial liabilities are measured at amortized cost using the effective interest method, with the exception of bank notes in circulation, which are measured at face value. The Bank has not classified any of its financial liabilities as HFT.

(g) Securities Lending Program

The Bank operates a Securities Lending Program to support the liquidity of Government of Canada securities by providing a secondary and temporary source of these securities to the market. These securities-lending transactions are fully collateralized by securities and are generally one business day in duration. The securities loaned continue to be accounted for as investment assets. Lending fees charged by the Bank on these transactions are included in Other revenue at the maturity date of the transaction.

(h) Property and equipment

Property and equipment consists of land, buildings, computer hardware, other equipment, intangible assets, and projects in progress. Property and equipment are recorded at cost less accumulated amortization except for land, which is recorded at cost and projects in progress, which are recorded at cost but not amortized until the asset is put into service.

Intangible assets are non-monetary assets without physical substance. The Bank’s intangible assets consist of computer software and computer software components of the ongoing costs of projects in progress. Costs that are directly associated with the acquisition or internal development of identifiable software which will, in management’s best estimate, provide a future economic benefit to the Bank are recognized as intangible assets (note 7).

Amortization is calculated using the straight-line method and is applied over the estimated useful lives of the assets, as shown below.

When completed, projects in progress are classified according to the above categories.

(i) Securities purchased under resale agreements

Securities purchased under resale agreements are reverse repo-type transactions in which the Bank purchases securities from designated counterparties with an agreement to sell them back at a predetermined price on an agreed transaction date. For accounting purposes, these agreements are treated as collateralized lending transactions and are recorded on the balance sheet at the amounts at which the securities were originally acquired plus accrued interest.

(j) Securities sold under repurchase agreements

Securities sold under repurchase agreements are repo-type transactions in which the Bank sells Government of Canada securities to designated counterparties with an agreement to buy them back at a predetermined price on an agreed transaction date. For accounting purposes, these agreements are treated as collateralized borrowing transactions and are recorded on the balance sheet at the amounts at which the securities were originally sold plus accrued interest.

(k) Future accounting changes

International Financial Reporting Standards (IFRS)

On October 28, 2009, the Public Sector Accounting Board approved an amendment to the scope of public sector accounting standards requiring government business entities to report under IFRS for the years beginning on or after January 1, 2011. As a government business entity, the Bank will be required to report under IFRS beginning with the year ended December 31, 2011, and to present its 2010 comparative figures in compliance with IFRS which will then be reconciled to the Canadian GAAP figures previously reported.

The Bank continues to evaluate the impact of these new standards on the recognition, measurement, presentation, and disclosure of financial statement items.

As a result of work completed to the reporting date, management anticipates that employee future benefits and financial instruments will be the areas of the financial statements most significantly affected owing to measurement differences under IFRS.

The International Accounting Standards Board (IASB) has several projects underway, some of which will have an impact on standards that are relevant to the Bank. In particular, the Bank is closely monitoring the progress of projects on financial instruments, employee benefits and leases that may result in revised standards being issued before 2011. Any revisions made to these standards may cause management to revisit its assessment of transitional impacts.

3. Cash and foreign deposits

Cash and foreign deposits is composed of highly liquid demand deposits with other central banks or international institutions and Canadian-dollar demand deposits used for operational purposes. Included in this balance is CAN$3.3 million (CAN$108.3 million in 2008) of U.S. dollars.

4. Loans and receivables

Loans and receivables are comprised primarily of securities purchased under resale agreements and, if any, advances to members of the Canadian Payments Association. In 2009, the Bank continued to provide access to exceptional term liquidity to the Canadian financial system through both of these instruments. These transactions are fully collateralized in accordance with publicly disclosed collateral eligibility and margin requirements. Financial risks related to these instruments are discussed in note 6.

(a) Securities purchased under resale agreements

Securities purchased under resale agreements for terms of one business day are acquired through buyback transactions with primary dealers in Government of Canada securities to reinforce the target overnight interest rate.

Securities purchased under resale agreements for terms of longer than one business day are acquired through an auction process for the purposes of providing liquidity in support of the efficient functioning of financial markets and also for reinforcing the Bank’s conditional statement regarding the expected future path of the target overnight interest rate. Details of these auctions are announced by the Bank in advance. Bids are submitted on a yield basis, and funds are allocated in descending order of bid yields.

Balances outstanding at December 31 consist of agreements with original terms to maturity ranging from 84 to 363 days. (Balances outstanding at December 31, 2008, consist of agreements with original terms to maturity ranging from 28 to 91 days.)

(b) Advances to members of the Canadian Payments Association

Advances to members of the Canadian Payments Association is typically comprised of liquidity loans made under the Bank’s standing liquidity facility. These advances mature the next business day. Interest on overnight advances is calculated at the Bank Rate.

In 2008, these advances included term advances made through the Bank’s Term Loan Facility consistent with the Bank’s commitment to provide term liquidity to the Canadian financial system. This facility ended in October 2009.

5. Investments

In Other investments, the Bank holds 9 441 BIS shares in order to participate in the BIS and in international initiatives generally. Ownership of the BIS shares is limited to central banks, and new shares can only be acquired following an invitation to subscribe extended by the BIS Board of Directors. The shares are non-transferable unless prior written consent is obtained from the BIS. BIS shares are classified as AFS but are measured at cost, since they do not have a quoted market value in an active market.

Financial risks relating to Investments are discussed in note 6.

6. Financial instruments and risk

The Bank’s financial instruments consist of cash and foreign deposits, securities purchased under resale agreements, advances to members of the Canadian Payments Association, other receivables, investments, bank notes in circulation, deposits, and other liabilities (net of post-employment and post-retirement obligations).

Fair value of financial instruments

(a) Carrying amount and fair value of financial instruments

The fair values of financial assets and liabilities are presented in the following table.

(b) Financial instruments measured at fair value

Treasury bills of Canada are measured at fair value using unadjusted quoted market prices in an active market.

(c) Financial instruments not measured at fair value

Fair values of securities purchased under resale agreements are determined using market yields to maturity for similar instruments available at the balance sheet date.

Fair values of Government of Canada bonds are determined based on unadjusted quoted market prices in an active market.

The fair value for BIS shares (Other investments) is determined as being 70% of the Bank’s interest in the BIS shareholders’ equity as of November 30, 2009. The approach used to calculate fair value is based on a decision by the International Court at The Hague for the acquisition of shares from former private shareholders of the BIS.

The amortized cost of advances to members of the Canadian Payments Association, other receivables, deposits, and other financial liabilities (which is composed of other liabilities, excluding the portion representing accrued post-retirement and post-employment benefits liabilities as described in note 12) approximates fair value, given their short-term nature. The face value of bank notes in circulation is equal to their fair value.

Financial risk

The Bank is exposed to credit risk, market risk, and liquidity risk as a result of holding financial instruments. The following is a description of those risks and how the Bank manages its exposure to them.

(a) Credit risk

Credit risk is the risk that a counterparty to a financial contract will fail to discharge its obligations in accordance with agreed-upon terms.

The Bank is exposed to credit risk through its investment portfolio, advances to members of the Canadian Payments Association, and through market transactions conducted in the form of securities purchased under resale agreements and loans of securities. The maximum exposure to credit risk is estimated to be the carrying value of the items listed above. There are no past due or impaired amounts.

Advances to members of the Canadian Payments Association and securities purchased under resale agreements are fully collateralized loans. Collateral is taken in accordance with the Bank’s publicly disclosed eligibility criteria and margin requirements accessible on its Web site. Strict eligibility criteria are set for all collateral, and the Bank requires excess collateral relative to the size of the loan provided.

In the unlikely event of a counterparty default, collateral can be liquidated to offset credit exposure. The credit quality of collateral is managed through a set of restrictions based on asset type, term to maturity, and the credit ratings of the securities pledged.

During the year, the Bank increased the duration of certain of its Securities purchased under resale agreements (note 4). These longer-term agreements are subject to the same collateral and margin requirements as all other securities purchased under resale agreements.

Concentration of credit risk

The Bank’s investment portfolio, representing 64% of the carrying value of its total assets (52% in 2008), is essentially free of credit risk because the securities held are primarily direct obligations of the Government of Canada. The Bank’s advances to members of the Canadian Payments Association and securities purchased under resale agreements, representing 36% of the carrying value of its total assets (45% in 2008), are collateralized obligations of various Canadian-based financial institutions.

The fair value of collateral pledged against securities purchased under resale agreements at the balance sheet date is $26,655.8 million ($37,753.5 million in 2008), representing 105% (107% in 2008) of the amortized cost of $25,374.8 million ($35,326.9 million in 2008).

Collateral is concentrated in the following major categories:

(b) Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk, and other price risk.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Bank’s investment in treasury bills and bonds acts as a counterpart to the non-interest-bearing bank notes in circulation liability, and supports the Bank’s operational independence to conduct monetary policy. These assets are acquired in proportions that broadly resemble the structure of the Government of Canada’s domestic debt outstanding to reduce interest rate risk from the perspective of the Government of Canada.

The Bank’s exposure to fair-value interest rate risk arises principally through its investment in treasury bills. The aforementioned instruments are short term in duration. The fair value of the treasury bills of Canada portfolio held by the Bank is exposed to fluctuations owing to changes in market interest rates since these securities are classified as AFS and are measured at fair value. Unrealized gains and losses on the treasury bills of Canada portfolio are recognized in Accumulated Other Comprehensive Income in the Capital section of the balance sheet until they mature or are sold. All other financial assets or liabilities are carried at amortized cost or at face value.

The figures below show the effect at December 31, 2009, of an (increase)/decrease of 25 basis points in interest rates on the fair value of the treasury bill portfolio and other comprehensive income.

The Bank’s exposure to interest rate risk in the form of fluctuations in future cash flows of existing financial instruments is limited to Government of Canada deposits and cash and foreign deposits, since these instruments are subject to variable interest rates. The remainder of the Bank’s financial assets and liabilities have either fixed interest rates or are non-interest-bearing.

The figures below show the effect in 2009 of an increase/(decrease) of 25 basis points in interest rates on the interest expenses paid on Government of Canada deposits.

For all financial instruments, except bank notes in circulation, the future cash flows of the Bank are dependent on the prevailing market rate of interest at the time of renewal.

The following table illustrates interest rate risk relative to future cash flows by considering the expected maturity or repricing dates of existing financial assets and liabilities.

As at December 31, 2009

¹ Carrying amounts of Government of Canada bonds include accrued interest.

As at December 31, 2008 

¹ Carrying amounts of Government of Canada bonds include accrued interest.

The Bank’s revenue will vary over time in response to future movements in interest rates. These variations would not affect the ability of the Bank to fulfill its obligations since its revenues greatly exceed its expenses.

Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

At December 31, 2009, the Bank did not hold a significant amount of U.S. dollars (CAN$108.3 million in 2008). Given the small size of the net foreign currency exposure relative to the total assets of the Bank, currency risk is not considered material.

Other price risk

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from changes in interest and exchange rates), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. The Bank is not exposed to significant other price risk.

(c) Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. As shown in the following table, the Bank’s largest liability is Bank notes in circulation. As a counterpart to this non-interest-bearing liability with no fixed maturity, the Bank holds a portfolio of highly liquid, interest-bearing securities. In the event of an unexpected redemption of bank notes, the Bank has the ability to settle the obligation by selling its assets.

As the nation’s central bank, the Bank is the ultimate source of liquid funds to the Canadian financial system, and has the power and operational ability to create Canadian-dollar liquidity in unlimited amounts at any time. This power is exercised within the Bank’s commitment to keep inflation low, stable, and predictable.

The following table presents a maturity analysis of the Bank’s financial assets and liabilities. The balances in this table do not correspond to the balances in the Balance Sheet, since the table presents all cash flows on an undiscounted basis.

As at December 31, 2009

¹ Interest payments on Government of Canada bonds are classified according to their coupon date.

In cases where counterparties to securities purchased under resale agreements substitute collateral after the outset of an agreement, portions of the carrying values presented may mature earlier than as presented where the amount maturing early is dependent on the value of collateral being substituted. Where collateral has been substituted, new agreements are typically re-established under the same terms and conditions. The information presented in the above table is prepared according to agreements currently in place.

As at December 31, 2008

¹ Interest payments on Government of Canada bonds are classified according to their coupon date.

¹ Interest payments on Government of Canada bonds are classified according to their coupon date.

In the tables above, liabilities with no fixed maturity include Bank notes in circulation and Government of Canada Deposits. Historical experience has shown that bank notes in circulation provide a stable source of long-term funding for the Bank. Government of Canada Deposits are deposits held in the Bank’s capacity as the Government of Canada’s fiscal agent. Included in these deposits are funds deposited with the Bank to support the provision of exceptional liquidity to the Canadian financial system.

7. Property and equipment

Projects in progress consist primarily of the Analytic Environment Program ($14.3 million at December 31, 2009; $5.3 million at December 31, 2008). The project to upgrade bank-note processing equipment, in progress at December 31, 2008 ($1.9 million at December 31, 2008), was completed during the year.

In 2009, $1.4 million in computer software was acquired externally. $4.7 million in intangible assets in progress were developed internally during the year and $1.7 million in intangible assets were acquired externally.

During 2009, a total of $15.7 million in amortization expense was recorded of which $13.4 million relates to tangible assets and $2.3 million relates to intangible assets.

During the year, the National Currency Collection and Leasehold improvements, formerly reported under Other assets, were reclassified to Other equipment, resulting in an increase in net book value of $3.5 million for 2008.

The net carrying amount of both tangible and intangible assets is reviewed when events or changes in circumstances indicate that future benefits may no longer be reasonably assured, and is adjusted if required. No such adjustments were recorded during the year ended December 31, 2009. During 2008, the Bank’s work in preparation for the Canadian Payments Association’s Truncation and Electronic Cheque Presentation initiative was terminated prior to completion and accumulated project costs to the date of termination, totalling $2.4 million, was written off.

8. Other assets

Other assets include the pension accrued benefit asset of $83.2 million ($53.3 million in 2008) and other items related to the administrative functions of the Bank.

9. Bank notes in circulation

In accordance with the Bank of Canada Act, the Bank has the sole authority to issue bank notes for circulation in Canada. A breakdown by denomination is presented below.

Other bank notes include denominations that are no longer issued but remain as legal tender. Bank notes in circulation are non-interest-bearing liabilities and are due on demand.

10. Deposits

The liabilities within this category consist primarily of $15,550.2 million in Canadian-dollar demand deposits (CAN$24,315.9 million in Canadian-dollar demand deposits and CAN$97.3 million in U.S.-dollar demand deposits in 2008). The Bank pays interest on the deposits for the Government of Canada, banks, and other financial institutions at market-related rates.

11. Other liabilities

This category primarily includes accrued post-retirement and post-employment benefits liabilities of $138.1 million ($125.2 million in 2008), an accrued transfer payment to the Receiver General for Canada of $23.6 million ($52.2 million in 2008) which is included in the total transfer to the Receiver General for the year presented in the Statement of Changes in Capital, accounts payable and accrued liabilities of $37.9 million ($48.4 million in 2008), and payroll liabilities of $0.2 million ($0.3 million in 2008).

12. Employee benefit plans

The Bank sponsors a number of defined-benefit plans that provide pension and other post-retirement and post-employment benefits to its eligible employees.

The pension plans provide benefits under a Registered Pension Plan and a Supplementary Pension Arrangement. The pension calculation is based mainly on years of service and average pensionable income and is generally applicable from the first day of employment. The pension is indexed to reflect changes in the consumer price index on the date payments begin and each January 1, thereafter.

The Bank sponsors post-retirement health, dental, and life insurance benefits, as well as post-employment self-insured long-term disability and continuation of benefits to disabled employees. The Bank also sponsors a long-service benefit program for employees hired before January 1, 2003.

The Bank measures its accrued benefits obligations and fair value of plan assets for accounting purposes as at December 31 of each year. The most recent actuarial valuation for funding purposes of the Registered Pension Plan was done as of January 1, 2009, and the next required valuation will be as of January 1, 2010.

Information about the employee benefit plans is presented in the tables below.

Plan assets, benefit obligation, and plan status

¹  For the Supplementary Pension Arrangement, in which the accrued benefit obligation exceeds plan assets, the accrued benefit obligation and fair value of plan assets totalled $67.3 million ($71.0 million in 2008) and $50.9 million ($40.3 million in 2008), respectively.

²  The assets of the pension benefit plans were composed as follows: 56% equities; 26% bonds; 8% real return Government of Canada bonds; 1% other real return investments; 4% real estate assets; and 5% short-term securities and cash (52%, 28%, 6%, 4%, 6%, and 4%, respectively, in 2008).

The accrued benefit asset for the defined-benefit pension plans is included in the balance sheet category, Other assets. The accrued benefit liability for the other benefits plans is included in the balance sheet category, Other liabilities.

Benefit plan expense

Significant assumptions

The significant assumptions used are as follows (on a weighted-average basis).

2009 sensitivity of key assumptions (Millions of dollars)

The total cash payment from the Bank for employee future benefits for 2009 was $58.0 million ($13.8 million in 2008), consisting of $51.3 million ($7.2 million in 2008) in cash contributed by the Bank to its pension plans and $6.7 million ($6.6 million in 2008) in cash payments directly to beneficiaries for its unfunded other benefits plans.

Regulations governing federally regulated pension plans establish certain solvency requirements that assume that the plans are wound up at the valuation date. The actuarial valuation of the Registered Pension Plan completed at January 1, 2009, reported a solvency deficit of $129 million. The Bank is contributing an amount sufficient to fund this solvency deficit over a period of five years. During the year, approximately $25.9 million of the employer contributions to the plan reflect solvency deficit payments. It is anticipated that $28.2 million in employer contributions will be required in 2010. The amount of contributions in future years is dependent on the investment experience of plan assets, as well as the discount rate used to value liabilities for solvency purposes.

13. Capital

The Bank’s objective in managing its capital is compliance with the externally imposed requirements of the Bank of Canada Act, which are outlined below. Capital is composed of share capital, a statutory reserve, a special reserve, retained earnings, and accumulated other comprehensive income. The Bank is not in violation of any externally imposed capital requirements at the balance sheet date. The Bank’s objectives in managing its capital have not changed from the prior year.

Share capital

The authorized capital of the Bank is $5.0 million divided into 100 000 shares with a par value of $50 each. The shares are fully paid and have been issued to the Minister of Finance, who is holding them on behalf of the Government of Canada.

Statutory reserve

The statutory reserve was accumulated out of net income until it reached the stipulated maximum amount of $25.0 million in 1955.

Special reserve

The special reserve was created in 2007 further to an amendment to the Bank of Canada Act to offset potential unrealized valuation losses due to changes in the fair value of the Bank’s available-for-sale portfolio. The amount held in the special reserve is reviewed regularly for appropriateness using Value-at-Risk analysis and scenario-based stress tests and may be amended, pursuant to a resolution passed by the Board of Directors. The Value-at-Risk analysis uses historical data to estimate the maximum possible extent of unrealized valuation losses on the Bank’s treasury bill portfolio. The scenario-based stress tests assess the impact of a rapid increase in interest rates on the value of the Bank’s treasury bill portfolio. This reserve is subject to a ceiling of $400 million; an initial amount of $100 million was established in September 2007.

Retained earnings

The Bank does not hold retained earnings. The net income of the Bank, less any allocation to reserves, is considered ascertained surplus and is transferred to the Receiver General for Canada, consistent with the requirements of section 27 of the Bank of Canada Act.

Accumulated other comprehensive income

Accumulated other comprehensive income records and tracks unrealized valuation gains and losses on the Bank’s available-for-sale portfolio, excluding BIS shares, which are recorded at cost.

14. Expense by class of expenditure

15. Commitments, contingencies, and guarantees

(a) Operations

The Bank has a long-term contract with an outside service provider for retail debt services, which expires in 2021. At December 31, 2009, fixed payments totalling $135.9 million remained, plus a variable component based on the volume of transactions.

The Bank occupies leased premises in Halifax, Montréal, Toronto, Calgary, and Vancouver. At December 31, 2009, the future minimum payments are $7.1 million for rent, real estate taxes, and building operations. The expiry dates vary for each lease, from October 2010 to September 2018.

Minimum annual payments for long-term commitments

(b) Foreign currency contracts

The Bank is a counterparty to several foreign currency swap facilities as follows:

The US$30 billion facility with the Federal Reserve Bank of New York expires on February 1, 2010. The other facilities have indefinite terms and are subject to annual renewal.

The Bank is also party to a standing foreign currency swap facility with the Exchange Fund Account of Canada. There is no stated maximum amount under this agreement.

These swap facilities were not used in 2009 or 2008 and, therefore, there were no related commitments at December 31, 2009.

(c) Contingency

The 9 441 shares in the BIS have a nominal value of 5 000 special drawing rights (SDRs) per share, of which 25%, i.e. SDR1,250, is paid up. The balance of SDR3,750 is callable at three months’ notice by decision of the BIS Board of Directors. The Canadian equivalent of this contingent liability was $58.1 million at December 31, 2009, based on prevailing exchange rates.

(d) Guarantees

In the normal course of operations, the Bank enters into certain guarantees, which are described below.

Large Value Transfer System (LVTS) Guarantee

The LVTS is a large-value payment system, owned and operated by the CPA. Any deposit-taking financial institution that is a member of the CPA can participate in the LVTS, provided that it maintains a settlement account at the Bank, has the facilities to pledge collateral for LVTS purposes, and meets certain technical requirements. The system’s risk-control features, which include caps on net debit positions and collateral to secure the use of overdraft credit, are sufficient to permit the system to obtain the necessary liquidity to settle in the event of the failure of the single LVTS participant having the largest possible net amount owing. The Bank guarantees to provide this liquidity, and in the event of the single participant failure, the liquidity loan will be fully collateralized. In the extremely unlikely event that there were defaults by more than one participant during the LVTS operating day, in an aggregate amount in excess of the largest possible net amount owing by a single participant, there would not likely be enough collateral to secure the amount of liquidity that the Bank would need to provide to settle the system. This might result in the Bank having unsecured claims on the defaulting participants in excess of the amount of collateral pledged to the Bank to cover the liquidity loans. The Bank would have the right, as an unsecured creditor, to recover any amount of its liquidity loan that was unpaid. The amount potentially at risk under this guarantee is not determinable, since the guarantee would be called upon only if a series of extremely low-probability events were to occur. No amount has ever been provided for in the liabilities of the Bank, and no amount has ever been paid under this guarantee.

Other indemnification agreements

In the normal course of operations, the Bank provides indemnification agreements with various counterparties in transactions such as service agreements, software licences, leases, and purchases of goods. Under these agreements, the Bank agrees to indemnify the counterparty against loss or liability arising from acts or omissions of the Bank in relation to the agreement. The nature of the indemnification agreements prevents the Bank from making a reasonable estimate of the maximum potential amount that the Bank would be required to pay such counterparties.

(e) Insurance

The Bank does not insure against direct risks of loss to the Bank, except for potential liabilities to third parties and where there are legal or contractual obligations to carry insurance. Any costs arising from risks not insured are recorded in the accounts at the time they can be reasonably estimated.

16. Related-party transactions

The Bank is related in terms of common ownership to all Government of Canada departments, agencies, and Crown corporations. To achieve its monetary policy objectives, the Bank maintains a position of structural and functional independence from the Government of Canada through its ability to fund its own operations without external assistance and through its management and governance structures.

All related-party transactions are recorded at their exchange amounts, which is the amount of consideration established and agreed upon by the related parties. Related-party transactions with the Government of Canada are disclosed as part of the financial statements or the relevant notes.

17. Comparative figures

Comparative figures have been reclassified where necessary to conform to the presentation adopted for the current year.

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DEPARTMENT OF THE ENVIRONMENT

CANADIAN ENVIRONMENTAL PROTECTION ACT, 1999

Notice is hereby given that, pursuant to section 127 of the Canadian Environmental Protection Act, 1999, Disposal at Sea Permit No. 4543-2-06623 authorizing the loading for disposal and the disposal of waste or other matter at sea is approved.

 1. Permittee: Barry Group Inc., Witless Bay, Newfoundland and Labrador.

 2. Waste or other matter to be disposed of: Fish waste and other organic matter resulting from industrial fish processing operations.

2.1. Nature of waste or other matter: Fish waste and other organic matter consisting of fish and shellfish waste.

 3. Duration of permit: Permit is valid from June 3, 2010, to June 2, 2011.

 4. Loading site(s): Witless Bay, Newfoundland and Labrador, at approximately 47°16.74′ N, 52°49.42′ W (NAD83).

 5. Disposal site(s): Witless Bay, within a 250 m radius of 47°16.34′ N, 52°47.54′ W (NAD83), at an approximate depth of 50 m.

 6. Method of loading:

6.1. The Permittee shall ensure that the material is loaded onto floating equipment complying with all applicable rules regarding safety and navigation and capable of containing all waste cargo during loading and transit to the approved disposal site.

6.2. The Permittee shall ensure that the waste to be disposed of is covered by netting or other material to prevent access by gulls and other marine birds, except during direct loading or disposal of the waste.

6.3. Material loaded for the purpose of disposal at sea may not be held aboard any ship for more than 96 hours from the commencement of loading without the written consent of an enforcement officer designated pursuant to subsection 217(1) of the Canadian Environmental Protection Act, 1999.

6.4. The loading and transit shall be completed in a manner that ensures that no material contaminates the marine environment, notably the harbour and adjacent beaches. The Permittee shall also ensure that the loading sites are cleaned up and, if necessary, that spilled wastes are recovered.

 7. Route to disposal site(s) and method of transport: Most direct navigational route from the loading site to the disposal site.

 8. Method of disposal:

8.1. The Permittee shall ensure that the waste to be disposed of shall be discharged from the equipment or ship while steaming within the disposal site boundaries and in a manner which will promote dispersion.

 9. Total quantity to be disposed of: Not to exceed 1 500 tonnes.

10. Inspection:

10.1. By accepting this permit, the Permittee and their contractors accept that they are subject to inspection pursuant to Part 10 of the Canadian Environmental Protection Act, 1999.

11. Contractors:

11.1. The loading or disposal at sea referred to under this permit shall not be carried out by any person without written authorization from the Permittee.

11.2. The Permittee shall ensure that all contractors involved in the loading or disposal activity for which the permit is issued are made aware of the conditions identified in the permit and of possible consequences of any violation of these conditions.

12. Reporting and notification:

12.1. The Permittee shall provide the following information at least 48 hours before loading and disposal activities commence: name or number of ship, platform or structure used to carry out the loading and/or disposal, name of the contractor including corporate and on-site contact information, and expected period of loading and disposal activities. The above-noted information shall be submitted to Mr. Rick Wadman, Environmental Protection Operations Directorate, Environment Canada, 6 Bruce Street, Mount Pearl, Newfoundland and Labrador A1N 4T3, 709-772-5097 (fax), rick.wadman@ec.gc.ca (email).

12.2. The Permittee shall submit a written report to the Minister, as represented by the Regional Director of the Environmental Protection Operations Directorate, Atlantic Region, c/o Mr. Rick Wadman, as identified in paragraph 12.1, within 30 days of either the completion of the work or the expiry of the permit, whichever comes first. This report shall contain the following information: the quantity of matter disposed of at the disposal site(s) and the dates on which disposal activities occurred.

12.3. This permit shall be displayed in an area of the plant accessible to the public.

I. R. GEOFFREY MERCER
Environmental Protection Operations Directorate
Atlantic Region
On behalf of the Minister of the Environment

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DEPARTMENT OF THE ENVIRONMENT

CANADIAN ENVIRONMENTAL PROTECTION ACT, 1999

Notice of extension granted by the Minister of the Environment under subsection 56(3) of the Canadian Environmental Protection Act, 1999

Pursuant to subsection 56(4) of the Canadian Environmental Protection Act, 1999, notice is hereby given that the following time extensions were granted under the Notice requiring the preparation and implementation of pollution prevention plans for inorganic chloramines and chlorinated wastewater effluents, published in the Canada Gazette, Part I, on December 4, 2004.

On June 10, 2009, the Minister of the Environment granted to the Region of Waterloo Transportation and Environmental Services — Waterloo Wastewater Treatment Plant a time extension of six months to implement the Pollution Prevention Plan. The period to implement the plan is therefore extended to December 31, 2010.

On December 30, 2009, the Minister of the Environment granted to the Regional Municipality of Halton — Oakville Southeast Wastewater Treatment Plant a time extension of four months to implement the Pollution Prevention Plan. The period to implement the plan is therefore extended to November 1, 2010.

On December 30, 2009, the Minister of the Environment granted to the Corporation of the City of Elliot Lake — Esten Lake Wastewater Treatment Plant a time extension of six months to implement the Pollution Prevention Plan. The period to implement the plan is therefore extended to December 31, 2010.

On March 31, 2010, the Minister of the Environment granted to the Corporation of Norfolk County — Simcoe Water Pollution Control Plant a time extension of four months to implement the Pollution Prevention Plan. The period to implement the plan is therefore extended to November 1, 2010.

For additional information, please contact Mr. James Arnott, Chief, Wastewater Section, Aboriginal and Public Sectors Division, Public and Resources Sectors Directorate, by telephone at 819-994-4674 or by fax at 819-953-7253.

Ottawa, March 31, 2010

KAREN MAILHIOT
Acting Director
Regulatory Innovation and Management Systems
Legislative and Regulatory Affairs
On behalf of the Minister of the Environment

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DEPARTMENT OF INDUSTRY

OFFICE OF THE REGISTRAR GENERAL

Appointments

Name and position

Instrument of Advice dated April 9, 2010

Ambrose, The Hon. Rona, P.C.

Minister of Public Works and Government Services and Minister of State to assist the Minister of Canadian Heritage to be styled Minister of Public Works and Government Services and Minister for Status of Women

April 22, 2010

DIANE BÉLANGER
Manager

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DEPARTMENT OF INDUSTRY

OFFICE OF THE REGISTRAR GENERAL

Appointments

April 22, 2010

DIANE BÉLANGER
Manager

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NOTICE OF VACANCY

COURTS ADMINISTRATION SERVICE

Chief Administrator (full-time position)

Salary range: $190,400–$224,000

Location: National Capital Region

The Courts Administration Service protects and enhances judicial independence through management of all courts administration operations at arm’s length from the Government of Canada, and by respecting the constitutionally protected scope of power of the Chief Justices and judges in the management of the courts.

The Chief Administrator ensures the effective and efficient provision of administrative services to the Federal Court of Appeal, the Federal Court, the Court Martial Appeal Court and the Tax Court of Canada through facilitation of coordination and cooperation among those courts and through implementation of modern professional public service management principles and practices designed to enhance accountability for the use of public money in support of the Courts, pursuant to the Courts Administration Service Act.

The successful candidate should have a university degree in a relevant field of study, or a combination of equivalent education, job-related training and experience. A law degree, preferably from a Canadian university, would be an asset. The chosen candidate must have significant management experience, at the senior executive level, in a public or private sector organization, preferably in a legal or judicial context and at the federal level. Demonstrated experience is required in managing the operations of large complex public or private sector organizations, including dealing strategically and appropriately with multiple senior executives. The ideal candidate must have experience in negotiating and achieving consensus on complex issues among a variety of stakeholders with competing objectives, as well as demonstrated decision-making experience at a senior level with respect to sensitive administrative issues. The suitable candidate must also have experience in providing strategic advice on complex and sensitive matters.

Significant senior level experience in the operations of government and in particular in dealing strategically and appropriately with central agencies, within an arm’s length relationship, along with experience in the application of modern professional public service management principles and practices would be considered assets. Experience dealing with Chief Justices and in courts administration would also be considered assets.

The preferred candidate will be knowledgeable of the principles of judicial independence, and the constitutional role of the superior court judiciary and its relationship with Parliament and the government, as well as the mandate, role and responsibilities of the Courts Administration Service and of the Chief Administrator, as set out in the Courts Administration Service Act. Knowledge of the operations of the federal government and Cabinet processes, including the role of central agencies in relation to arm’s-length organizations, is required. The qualified candidate will also have knowledge of the functions and responsibilities as Deputy Head of a department for purposes of the Federal Accountability Act, the Public Service Employment Act and related statutes and regulations, and in the administration and operation of courts.

The favoured candidate will possess a demonstrated ability to negotiate and achieve consensus among a variety of stakeholders on complex issues and to engage and maintain appropriate co-operative relationships with other senior private sector executives or senior judicial managers. The ability to make sound decisions and to provide corporate leadership and vision, including building and maintaining a high level of motivation and morale in employees, is also required. Candidates being considered for this position must be able to analyze differing opinions and complex situations and respond strategically and reasonably, with a view to making recommendations that are fair and equitable. He or she must also have superior communication skills, both written and oral, and the ability to act as spokesperson in dealing with the media.

The chosen candidate must demonstrate tact, diplomacy and discretion, as well as integrity and high ethical standards, and be a strong visionary leader with sound judgment who can inspire others. Superior interpersonal skills and sensitivity to the legal and constitutional context of the judiciary and the courts are also required. Finally, the successful candidate must be decisive, innovative and action oriented.

The successful candidate must be willing to relocate to the National Capital Region or to a location within reasonable commuting distance.

Proficiency in both official languages is preferred.

The Government is committed to ensuring that its appointments are representative of Canada’s regions and official languages, as well as of women, Aboriginal peoples, disabled persons and visible minorities.

DEPARTMENT OF TRANSPORT

CANADA MARINE ACT

Sept-Îles Port Authority — Supplementary letters patent

BY THE MINISTER OF TRANSPORT

WHEREAS letters patent were issued by the Minister of Transport for the Sept-Îles Port Authority (“Authority”) under the authority of the Canada Marine Act (“Act”), effective May 1, 1999;

WHEREAS the Authority has requested that the Minister of Transport issue supplementary letters patent increasing the aggregate limit on the power of the Authority to borrow money on the credit of the port authority for port purposes and adding two further borrowing limits specific to identified projects;

WHEREAS the Minister of Transport is satisfied that the proposed amendments to the letters patent of the Authority is consistent with the Act;

WHEREAS by Order in Council P.C. 2010-290 of March 11, 2010, the Governor in Council, pursuant to subsection 8(5) of the Act, approved the provisions of the proposed supplementary letters patent for the purposes of increasing the aggregate limit on the power of the Authority to borrow money on the credit of the port authority for port purposes and adding two further borrowing limits specific to identified projects;

NOW THEREFORE under the authority of section 9 of the Act, the letters patent are amended as follows:

1. Section 9.2 of the letters patent issued to the Sept-Îles Port Authority is replaced by the following:

9.2 Limit on Borrowing Power. The Authority shall not incur any item of Borrowing so that the aggregate Borrowing of the Authority would exceed $43 million.

2. The letters patent are amended by adding the following after section 9.2:

9.2.1 Additional Borrowing Limit for Construction of the Cruise Ship Terminal at the Mgr. Blanche Dock Project. Notwithstanding section 9.2, the Authority may, in addition to the aggregate amount of $43 million referred to in section 9.2, borrow up to a maximum of $6,613,666 on its credit, specifically for the construction of a cruise ship terminal at the Mgr. Blanche dock, provided such Borrowing be fully reimbursable in capital and interest by the Province of Quebec over a ten (10) year period commencing approximately twelve (12) months after financing arrangements for the project have been finalized by the Authority.

9.2.2 Additional Borrowing Limit for Improvements to the La Relance Bulk Terminal. Notwithstanding section 9.2, and in addition to the additional borrowing provided for in section 9.2.1 the Authority may borrow up to a maximum of $15 million on its credit, specifically for improvements to the La Relance Bulk Terminal, provided such Borrowing be fully reimbursable in capital, interest and associated costs by Aluminerie Alouette Inc. over a ten (10) year period commencing on the date of commencement of construction of the said project.

Issued under my hand to be effective this 16th day of April 2010.

___________________________________
John Baird, P.C., M.P.
Minister of Transport

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