Eric Beauchesne
Sun
OTTAWA – The federal government and Bank of Canada have dramatically stepped up their efforts to manage the financial market crisis with promises of further multibillion-dollar injections of liquidity into domestic mortgage and credit markets.
But neither the measures here, nor the announcement of a shift in U.S. government efforts to ease the credit crisis there, reassured investors.
Bay Street’s benchmark S&P/TSX composite stock index plunged more than 500 points to under 9,000 points which also helped knock 2.77 cents off the dollar, leaving it at 80.81 cents US. That marks the longest losing streak for the currency in three weeks, as oil fell to the lowest in 22 months.
The Bank of Canada announced “measures to provide exceptional liquidity to the Canadian financial system” consisting of an additional $8 billion in short-term loans, and the Finance Department said it is prepared to purchase $50 billion more in mortgages from financial institutions.
Further, deputy bank governor Paul Jenkins, in a presentation to business leaders in Toronto, revealed the central bank will “likely be required” to cut interest rates further.
The additional measures by the Finance Department, meanwhile, triples, to $75 billion, the maximum value of mortgages that will be purchased by the government through Canada Mortgage and Housing Corp.
“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,” Finance Minister Jim 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,” he said, adding it will also earn the government a modest rate of return with no additional risk.
The action was applauded by Dominion Bond Rating Service, Canada‘s major bond-rating agency.
“While the Canadian banking industry remains strong, today’s announcement further reinforces DBRS’s assessment that the largest six Canadian banks would be expected to receive external support, given their importance to the Canadian financial system, if these institutions were to become distressed.”
The action came as U.S. Treasury Secretary Henry Paulson said the U.S. government was changing tactics in dealing with the financial crisis and will divert half of the $700 billion US that was to go into buying up bad mortgages and to increasing credit market liquidity.
© The Vancouver Sun 2008