Ottawa provides more support to credit markets

On Wednesday morning, the Government of Canada and the Bank of Canada both announced additional measures to keep credit flowing in this country.

The government plans to purchase up to $50 billion more of insured mortgage pools by the end of the fiscal year as part of its efforts to maintain the availability of longer-term credit in the country.

“At a time of considerable uncertainty in global financial markets, this action will provide Canada’s financial institutions with significant and stable access to longer-term funding,” says Finance Minister Jim Flaherty.

The move will increase to $75 billion the maximum value of securities purchased through Canada Mortgage and Housing Corporation (CMHC) under this program.

Meanwhile, the Bank of Canada plans to provide additional liquidity by injecting another $8 billion into the financial system.

“The Bank will continue to provide additional term liquidity as long as conditions in financial markets warrant,” says a Bank of Canada statement.

And on Tuesday, the Office of the Superintendent of Financial Institutions (OSFI) announced an increase in the allowable limit of innovative and preferred shares in Tier 1 capital. This will provide Canadian financial institutions with more sources of funds to support lending, according to the government.

In addition, the government will reduce the base commercial pricing of the Canadian Lenders Assurance Facility by 25 basis points. It will also waive the 25 basis point across-the-board surcharge for insurance provided under the Facility until further notice.

“The Government of Canada is prepared to take whatever steps are necessary to ensure that Canada’s strong financial system is not put at a competitive disadvantage by developments in other countries,” says Flaherty.

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(11/12/08)