What happens to points when I cancel a reservation

[supersnoop]

So am I correct that the system would NOT borrow any points, but would just use some of the banked points from the now-canceled BWV reservation, and the remainder of the points from the canceled BWV reservation would just go back to the current UY?

You’re assuming there’s a system. In theory, you are correct that the banked points would be used to book the waitlisted room. But the consensus seems to be that the waitlist is processed by people after a match is found. So, you may have do deal with human error. They might borrow points. But, if that happens, you should be able to get that corrected by calling them.

In short, yes, it will work like you expect, but you might have to do some of the work if they screw it up.