Large Value Transfer System (LVTS)
What it is:
The large value transfer system (LVTS) is a wire system in Canada that allows banks to transfer funds among each other.
How it works/Example:
The Bank of Canada and the country's department of finance developed the LVTS, which is now owned by the Canadian Payments Association. LVTS transfers settle on the same day, which makes payments virtually instantaneous.
The Bank of Canada guarantees and backs all LVTS payments. If an institution initiates an LVTS transfer and then tries to back out of the transaction, the Bank of Canada will seize collateral that the institution must pledge in order to use LVTS. In this way, settlements through LVTS are guaranteed, final and irrevocable.
Why it matters:
The LVTS allows financial institutions to ensure that they have sufficient funds and can prevent fraud. It also gives the country credibility as a reliable system for conducting international transactions, because transactions that go through the LVTS cannot be unwound. This reduces systemic risk.