Filling the Gap: Emergency Funding Programs and Asset-Based Finance in Times of Economic Crisis

28 Pages Posted: 28 Apr 2020

Date Written: April 1, 2020


The value in 2018 of vehicles and equipment for consumer and business customers in Canada financed by the asset-based finance (ABF) industry was an estimated $416 billion. The ABF industry supports a broad network of dealers, manufacturers, distributors, vendors and brokers, and their customers throughout the country. ABF is offered by banks, credit unions, insurance companies, government financial institutions, manufacturer finance companies, and independent finance companies. Several of these entities are regulated with consequent access to existing Bank of Canada programs for emergency lending. This paper focuses on those entities – both regulated and unregulated – that may not have such access, and yet are critical to the functioning of the economy. ABF entities ran into deep trouble during the 2008-2009 global financial crisis and required an emergency liquidity program from the federal government that took months to devise and implement. The primary source of funding of the ABF sector was, and is, the asset-backed commercial paper and securitization markets, often with bank back-up or standby lines, purchased by private pools of investment capital – insurance companies, pension plans, hedge funds, banks and others. The 2008-2009 experience revealed that a complete loss of liquidity could occur within a few weeks, even days. Government was needed to step into the shoes of absent private-sector investors. Given the ABF industry’s relative success and low delinquencies, this Commentary recommends that, during periods of extraordinary financial market turmoil, the federal government activate a large-scale securitization program that would fund ABF intermediaries who finance customers based on real assets. The government would purchase asset-backed securities backed by a pool of assets and their receivables, receiving the same protection and profit that a privatesector investor would receive. Once liquidity is restored and private investor confidence returned, the commercial markets would again resume their normal functioning and government could withdraw its scaled-up temporary emergency funding program. The 2009 Federal Budget established the Canadian Secured Credit Facility, a $12 billion fund administered by The Business Development Bank of Canada (BDC) to purchase term asset-based securities (ABS) backed by loans and leases on vehicles and equipment. Since then, under successor programs, the BDC has continued to purchase ABS albeit on a smaller scale. With more than 10 years of experience, the BDC understands the policies and rules for such funding. Existing BDC programs could, therefore, be scaled up in a severe downturn, with experienced people in place for effective, prudent and efficient funding. In a profoundly disrupted market, the policy objective should be to restore liquidity to allow the financial services sector to continue offering financing to credit-worthy consumers and businesses in support of the Canadian economy, and that must include the ABF industry.

Keywords: Financial Services and Regulation; Business Investment;Financial Stability;Prudential Regulation

JEL Classification: E58; G23; G28

Suggested Citation

Powell, David, Filling the Gap: Emergency Funding Programs and Asset-Based Finance in Times of Economic Crisis (April 1, 2020). C.D. Howe Institute Commentary 569, Available at SSRN: or

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