This can happen, firstly, via the price channel, as the role of the “risk-free rate” as a pricing benchmark is distorted. Falling values of sovereign bond portfolios also affect banks’ balance sheets, and reduce, through the liquidity channel the value of government bonds as collateral.
Stephen S Poloz: The Canadian economy – a progress report Remarks by Mr Stephen S Poloz, Governor of the Bank of Canada, to the Yukon Chamber of Commerce, Whitehorse, Yukon, 15 June 2016. *  *  *  I would like to thank Russell Barnett for his help in preparing this speech.