Finally, intervention was aimed at mitigating liquidity risk that, in the Bank’s judgment, was not in line with fundamentals; it did not attempt to alter credit risk. The fifth principle, that we mitigate the moral hazard of our interventions, served and continues to serve as a guide at all levels of our liquidity program.
The Bank of Canada took several precautions to mitigate the creation of perverse incentives that could adversely influence market behaviour. As I noted earlier, the Bank intervened only in response to specific, extraordinary episodes of heightened liquidity pressures.