Large Value Transfer System (LVTS)
The large value transfer system (LVTS) is an electronic wire payment system in Canada, facilitating the transfer of funds between large financial institutions, including the central Bank of Canada. The bank rate is at the top of the operating band, or, in this example, 3 percent, and this will be the rate that the Bank of Canada will charge on any overnight loans to banks in the LVTS system. The large value transfer system (LVTS) is an electronic wire payment system in Canada, facilitating the transfer of funds between large financial institutions, including the central Bank of Canada. The deposit rate is at the bottom of the operating band, or, in this example, 2.5 percent, and this will be the rate the Bank of Canada will pay on any surplus funds held overnight. So, if the operating band for the overnight rate 2.5 to 3.0 percent, the target for the overnight rate is 2.75 percent.
What Is the Large Value Transfer System?
The large value transfer system (LVTS) is an electronic wire payment system in Canada, facilitating the transfer of funds between large financial institutions, including the central Bank of Canada. It is a real-time gross settlement (RTGS) equivalent. Payments are not settled in real time but are settled the same day they are processed, in the evening. This makes the payments practically instantaneous.
Understanding Large Value Transfer System LVTS)
The large value transfer system (LVTS) processes most payments made in Canada and handles funds in Canadian dollars (CAD). On a typical business day, LVTS clears and settles about 28,000 payments a day worth CAD $153.5 billion. LVTS was launched in 1999 and is operated by Payments Canada. Sixteen Canadian banks, including the Bank of Canada, currently participate in the LVTS.
LVTS and the Overnight Rate
LVTS transactions can be performed for banks or their clients. At the end of each day, all participating banks need to settle up their LVTS transactions. This process may leave some banks with extra funds, while other banks need more funds to cover their transactions. Banks that have extra money are allowed to use the LVTS to loan money to banks that need more funds to cover their transactions. This is an overnight loan that takes place in the overnight market, at the overnight interest rate.
The overnight rate is set by the Bank of Canada, which aims to keep the rate within an operating band one-half of a percentage point wide. The target for the overnight rate is in the center of this band. So, if the operating band for the overnight rate 2.5 to 3.0 percent, the target for the overnight rate is 2.75 percent. The bank rate is at the top of the operating band, or, in this example, 3 percent, and this will be the rate that the Bank of Canada will charge on any overnight loans to banks in the LVTS system. The deposit rate is at the bottom of the operating band, or, in this example, 2.5 percent, and this will be the rate the Bank of Canada will pay on any surplus funds held overnight. The target for the overnight rate is comparable to the Federal Reserve’s target for the federal funds rate.
Benefits of LVTS Transactions
These transactions are instant, which improves the quickness and efficiency of business transactions. Once the transaction is sent through the system, it cannot be reversed. This prevents insufficient funds, stop payments and fraud. Because settlements through the LVTS system are guaranteed and irreversible, the system reduces the overall systemic risk for the Canadian economy.
Related terms:
CAD (Canadian Dollar)
CAD, nicknamed the "loonie," is the currency abbreviation or currency symbol used to denote the Canadian Dollar. read more
Canadian Overnight Money Market Rate
The Canadian overnight money market rate is the rate at which major dealers arrange financing of securities inventory for one business day. read more
Clearing
Clearing is when an organization acts as an intermediary to reconcile orders between transacting parties. A clearing bank approves checks for payments. read more
Euroclear
Euroclear is one of two principal clearing houses for securities traded in the Euromarket and specializes in verifying information supplied by brokers involved in a securities transaction and the settlement of securities. read more
Federal Reserve System (FRS)
The Federal Reserve System, commonly known as the Fed, is the central bank of the U.S., which regulates the U.S. monetary and financial system. read more
Fraud
Fraud, in a general sense, is purposeful deceit designed to provide the perpetrator with unlawful gain or to deny a right to a victim. read more
Real-Time Gross Settlement (RTGS)
Real-time gross settlement is the continuous process of settling payments on an individual order basis without netting debits with credits. read more
Same-Day Funds
Same-day funds is a term for money that can be transferred or withdrawn the same day that it is deposited into the recipient's bank account. read more
Wire Transfer
A wire transfer is an electronic transfer of funds across a network administered by hundreds of banks around the world. read more