The Canadian government will triple the amount of insured mortgages it will buy from banks as part of measures it announced on Wednesday to improve the availability of long-term credit. Other measures included making it cheaper to use government insurance guaranteeing bank borrowing, and regulatory changes to give banks more sources of funding.
Finance Minister Jim Flaherty said in a statement the government would purchase up to an additional C$50 billion ($41 billion) of insured mortgage pools by the end of the fiscal year on March 31. This will increase to C$75 billion the maximum value of securities bought through the government's Canada Mortgage and Housing Corporation under this program, the statement said.
"At a time of considerable uncertainty in global financial markets, this action will provide Canada's financial institutions with significant and stable access to longer-term funding," Flaherty said. "This extension of the program to purchase insured mortgages will further support the availability of credit, which will benefit Canadian households, businesses and the economy. In addition, it will earn a modest rate of return for the Government with no additional risk to the taxpayer."
The government will reduce the base commercial pricing of the Canadian Lenders Assurance Facility by 25 basis points. It will also waive the 25-basis-point across-the-board surcharge for insurance provided under the facility until further notice, he said in a statement. This facility, which guarantees borrowing by Canada's banks, was introduced on October 23 to ease a lending crunch and put the banks on an equal footing with foreign competitors.
The new pricing means the lowest price for insurance under the facility will be 110 basis points rather than the 160 basis points as announced on October 23. The Office of the Superintendent of Financial Institutions announced on Tuesday an increase in the allowable limit of innovative and preferred shares in Tier 1 capital, he said.
"This will provide Canadian financial institutions with more sources of funds to support lending in Canada. This will also ensure that similar decisions in other countries do not place Canadian institutions at a competitive disadvantage," the statement said. The statement also said the Bank of Canada would continue to provide exceptional liquidity to the Canadian financial system as long as conditions warrant.
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