Government mulls aid to banks if crisis persists: report

Thu Oct 9, 2008 7:59am EDT
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TORONTO (Reuters) - Canada's government is considering plans to shore up the nation's financial system by giving banks access to government-backed assets should the turmoil in global credit markets persist, a newspaper said on Thursday.

One plan under consideration would require the participation of Canada Mortgage and Housing Corp, the agency that buys mortgages from financial institutions and resells the loans as securities with the backing of the government, the Globe and Mail reported.

Under the proposal, CMHC would absorb some of the banks' mortgages and give the banks high-quality securities with the CHMC stamp in return, the newspaper said, citing unnamed sources familiar with the matter.

That would leave the banks with assets that other lenders would accept as collateral for short-term loans, thus increasing their own ability to lend, the newspaper said.

Canadian Prime Minister Stephen Harper said on Wednesday he guaranteed more action to deal with the credit crisis, and he said he is in constant communications with global partners and looking at all suggestions.

Canada has the world's soundest banking system, closely followed by Sweden, Luxembourg and Australia, a survey by the World Economic Forum has found as financial crisis and bank failures shake world markets.

(Reporting by Richard Valdmanis; Editing by Frank McGurty)