Flaherty announces borrowing help for Canadian banks

The federal government will provide a "backstop" to the country's banks, offering insurance on their wholesale term borrowing, Finance Minister Jim Flaherty said Thursday.

Flaherty said in Ottawa that the government is making the guarantee available so the country's banks aren't put at a competitive disadvantage amid the global credit squeeze. By doing so, Canada is following similar steps already taken by more than a dozen countries, including the U.S., the U.K., Australia, Spain, Ireland, Germany and Sweden.

"Our actions will help Canadian financial institutions secure access to longer-term funds so that they can continue lending to consumers, homebuyers and businesses in Canada," Flaherty said.

Flaherty said the insurance will be offered to federally regulated deposit-taking institutions on commercial terms, with no expected cost to taxpayers.

He told reporters that the program is only temporary, lasting from November to April. He said it will be up to the financial institutions to decide if they want to pay the premium to insure their debt.

'Modest' lessening of credit tightness seen: Flaherty

The measures are aimed at helping Canadian banks weather the storm during the global financial crisis sparked by the collapse of the credit market in the United States. Flaherty noted that some "modest" lessening of the tightness in the world's credit markets has been seen this week.

"By having the guarantees in place, it means that the costs of funds between banks is under control again, and, therefore, the banks are able to pass the benefit on to us, as borrowers," Glen Hodgson, chief economist with the Conference Board of Canada, told CBC News.

Flaherty insisted Canada's financial institutions are healthy, pointing out again that the country's banking requirements are stringent.

"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," he said.

Earlier this month, Flaherty announced the government's $25-billion takeover of bank-held mortgages to ease a growing credit crunch and free up money for financial institutions to lend to Canadians.

With files from the Canadian Press

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