- On Thursday, Canada stepped up its efforts to strengthen its banking industry.
- This action is in line with multibillion-dollar initiatives of a similar nature that have been implemented in the US and Europe.
- The Canadian government announced plans to buy up to $25 billion in mortgage assets from banks in Canada
On Thursday, Canada stepped up its efforts to strengthen its banking industry by providing loan guarantees to lessen the potential effects of the global financial crisis, which is expected to drive the nation toward an imminent recession.
This action is in line with multibillion-dollar initiatives of a similar nature that have been implemented in the US and Europe to revive the lending markets following a string of bank failures that were mainly caused by investments in troubled US mortgages.
Global financial crisis
The government’s commitment to preserving Canadian financial institutions’ competitiveness in international wholesale markets has been underlined by Finance Minister Jim Flaherty of Canada.
According to the Bank of Canada’s forecast, there will be a 0.4% contraction in the current quarter and no growth in the first quarter of 2009, which satisfies the technical requirements for a recession. Governor of the Bank of Canada Mark Carney, however, expressed hope that a recession could still be avoided rather than labeling the current state of the economy as recessionary.
A significant depreciation of the Canadian dollar could help manufacturers counterbalance the difficulties by offsetting the downturn in the commodities markets.
In the upcoming months, it is anticipated that the bank’s key interest rate reduction of 225 basis points since December of last year will spur economic growth. Canada is in a better position than other developed economies because of its comparatively strong banking and housing sectors.
Early November will mark the start of Canada’s program to support bank lending, which should last for at least six months. The Canadian Bankers Association applauded these new steps and emphasized that, despite the absence of federal government loan insurance, Canadian banks are well-capitalized and sound financially.
Recently, the Canadian government announced plans to buy up to $25 billion in mortgage assets from banks in Canada to increase liquidity and encourage lending to individuals and businesses.
