Budget 2009: Flaherty proposes increased powers for feds

In an effort to keep Canada financially stable and avoid future problems in credit markets, such as the recent asset-backed commercial paper crisis, Ottawa plans to give the Department of Finance increased powers to act quickly to protect the financial system in times of stress.

Under today’s budget proposals, the finance minister will have the authority to provide loans and lines of credit and to authorize the provision and payment of guarantees, as well as to inject capital directly into federal financial institutions.

“We do not foresee the need to use this authority,” said Finance Minister Jim Flaherty in the budget speech, “but we have a duty to be prepared should the unforeseen suddenly emerge.”

In related measures, the Canada Deposit Insurance Corporation’s (CDIC) borrowing limit will be increased to $15 billion from $6 billion, and the CDIC will be permitted to establish a bridge institution to help maintain stability in the event a CDIC member is no longer viable. Flaherty will be granted the power to direct the CDIC to take specific action to prevent adverse effects on financial stability.

Ottawa also plans to purchase $50 billion of insured mortgage pools in the first half of 2009–2010, in addition to the $75 billion already authorized, bringing the total amount of the program to $125 billion. According to budget documents, this will provide long-term stable funding to lenders.

Flaherty says his government will support the most recent effort to create a national securities regulator, which the minister called a “glaring weakness” in Canada’s financial system — pointing out that the current patchwork system of 13 separate regulators across the country causes uncertainty for investors and unnecessary red tape.

Ottawa will establish and fund a transition office for willing provinces and territories, with an eye to tabling a new securities act later this year based on the recommendations of an expert panel chaired by Tom Hockin. Earlier this month, that panel stated that the feds should create a single securities regulator administering a single securities act.

However, Flaherty says Ottawa will respect constitutional jurisdiction, and participation in the new Canadian Securities Regulator will be voluntary. Alberta and Quebec have already indicated that they would not participate in such a program.

(01/27/09)

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