Crisis still threatens Canadian economy: Flaherty
Canada's finance minister is warning Canadians that they are not immune from the global financial crisis as it threatens to dry up credit.
Jim Flaherty said Thursday morning that while Canada is better placed to deal with the crisis than most, it is not resistant to these "extraordinary times" in the global financial markets.
The finance minister said Ottawa is ready to act to protect the stability of the Canadian financial system but it won't include any sort of bailout package for Canadian banks, which he said are not susceptible to the meltdown that happened in the U.S.
"Our banks are solvent, our insurance companies are solvent, we regulate them, we have one of the highest capitalization requirements in the world . . . all of that is solid," he said.
Rather, Flaherty said actions will be taken to counteract a limitation on the ability of Canadians to secure long-term credit by weakening global credit markets.
"What we are looking at are measures that will increase liquidity in the Canadian market, which would help ensure the availability of credit for Canadian homeowners, for Canadian businesses, for car loans, for credit generally," Flaherty said.
According to the finance minister, one of these measures could include using the Canadian Mortgage and Housing Corp. to take some mortgages off the books of chartered banks, leaving them with additional assets.
Interest rates cut worldwide
Flaherty's remarks in Ottawa on Thursday morning came a day after major Canadian banks declined to follow the Bank of Canada's half-point cut to the lending rate.
The Bank of Canada slashed its key lending rate to 2.5 per cent Wednesday, one of many central banks making the move around the world. However, Canadian banks only cut their rate by a quarter of a point.
It is the first time in 10 years they did not mirror the Bank of Canada's cuts.
Flaherty said that could have an impact on lending in Canada and he asked the banks to lower rates as much as possible.
Toronto-Dominion Bank was the first institution in Canada to make a cut Wednesday, cutting their prime rate to 4.5 per cent. The other major Canadian banks followed throughout the day.
Sherry Cooper, BMO Capital Markets chief economist, said that the big banks simply couldn't afford the cut.
"We're all hoarding cash and as soon as that happens there is very little that the central bank or government can do directly," Cooper told CTV News.
She added it would take a year to 18 months before the effects of the rate cuts could be seen.
Andrew Pyle of ScotiaMcLeod told CTV's Canada AM on Thursday that many people are worried about how the lower-than-expected rate cuts will affect them.
"I think Canadians are justifiably concerned about what's going on and confused about what's going to happen to (their) mortgage," Pyle said.
Flaherty will meet with G-7 finance ministers in Washington on Friday for what he calls the most important meeting he's ever attended as a minister.
The goal of the meeting, he said, is to push for more progress to address the uncertainty in the global economy and to ensure countries act in a co-ordinated fashion.
Flaherty said Canada will also promote a second meeting of finance ministers to review the results, followed by a leaders' summit.
The United States, the United Kingdom, Europe, Switzerland, Sweden, China and Hong Kong cut their lending rates Wednesday trying to bolster the wheezing global economy.
The unprecedented move came as markets around the world struggled to navigate the turbulent global economy, with many offering bailouts to try and keep their economies going.
With files from The Canadian Press