Canada buys up mortgages, central bank lends more

Wed Nov 12, 2008 5:15pm EST
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By John McCrank

TORONTO (Reuters) - The Canadian government will buy up C$50 billion ($40 billion) more in insured mortgages from banks as part of a series of steps announced on Wednesday to improve the availability of long-term credit.

The move came as U.S. Treasury Secretary Henry Paulson said he was backing away from buying troubled mortgage assets using a $700 billion bailout fund. Canadian officials said the key difference between the two approaches is that Canadian mortgages are not in distress.

Other measures taken by Ottawa included making it cheaper to use government insurance to guarantee bank borrowing, loosening regulations for banks to allow them more sources of funding, and boosting the borrowing authority of the government's Business Development Bank by C$1.8 billion.

The Bank of Canada also set up a term loan facility to lend C$8 billion to banks in four tranches, using their non-mortgage loans as collateral.

The measures were aimed not only at easing the credit crunch but at ensuring that domestic banks are able to compete on an equal basis with those in other countries.

"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," Finance Minister Jim Flaherty said.

"The government will not allow Canada's financial system, which has been ranked as the soundest in the world, to be put at risk by global events."

Flaherty said Ottawa would triple to C$75 billion the amount of insured mortgage pools it would buy by the end of the fiscal year on March 31. The assets are already insured by the government's Canada Mortgage and Housing Corp.   Continued...

<p>Jim Flaherty, Canadian Minister of Finance, leaves the federal and provincial finance ministers meeting in Toronto, November 3, 2008. REUTERS/Mark Blinch</p>