24 Oct 2008

Canada issues loan guarantees for banks

6:17 am on 24 October 2008

The Canadian government is to guarantee borrowing by the nation's banks to ease a lending crunch and keep them on equal footing with foreign competitors.

The move was widely anticipated due to the global financial crisis.

Finance Minister Jim Flaherty said on Thursday the programme would provide insurance on wholesale term borrowing by federally regulated banks to help them secure longer-term funds to enhance their own ability to provide loans.

Earlier in the month, Ottawa announced a plan to buy up to C$25 billion ($US19.9 billion) in mortgage assets from the banks to help them boost liquidity and to encourage lending to consumers and businesses.

The federal government bought C$5 billion in mortgages in the first phase of the program on 16 October. A second auction of up to C$7 billion is scheduled for Thursday.

Under the plan announced Thursday, banks would be insured for up to 20% of their deposits as of 1 October.