Ottawa guarantees inter-bank loans

Finance Minister Jim Flaherty has announced the federal government will insure the inter-bank borrowing for federally regulated deposit-takers, making it easier for Canadian banks to access the global credit market.

The temporary Canadian Lenders Assurance Facility comes on the heels of similar guarantees extended by foreign governments.

“The Government of Canada is acting today to ensure that financial institutions in this country are not put at a competitive disadvantage when raising funds in wholesale markets to lend to consumers and businesses,” Flaherty said in an early morning announcement.

The minister went on to point out that Canada’s banking system has proven to be resilient, and is weathering the global credit crisis better than others.

The temporary program will expire six months after its start date, which is expected to be the beginning of November.

“Today’s announcement is an important part of Canada’s implementation of the recent G7 Plan of Action to stabilize financial markets, restore the flow of credit and support global economic growth,” Flaherty said. “The Government of Canada will never allow Canada’s financial system, which has been ranked as the soundest in the world, to be put at risk by global events.”

The move was greeted by the Canadian Bankers Association.

“Governments around the world have guaranteed loans between banks and our federal government has recognized that, without a similar move in Canada, our strong banks could find it more difficult to compete for loans on the international market,” said Nancy Hughes Anthony, president and CEO of the CBA.

She pointed out that Canadian banks have been recognized by both the World Economic Forum and the International Monetary Fund as being among the most stable in the world.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(10/23/08)