Canada May Act Further to Aid Banks, Pensions, Flaherty Says

By David Scanlan and Theophilos Argitis

Nov. 1 (Bloomberg) -- Canada's government may double its purchases of distressed loans among steps being considered to aid banks and private pension funds amid the worst financial crisis since the Great Depression, Finance Minister Jim Flaherty said.

The government is willing to buy more mortgages from commercial banks, after agreeing this month to purchase as much as C$25 billion ($21 billion) in real estate loans.

``We can do more dollar value if necessary,'' Flaherty said in an interview late yesterday in New York. ``We can go another C$25 billion; if we have to do more we will do more.''

The government is shoring up banks after interest rates on credits between lenders soared to the highest since 1990 last month. In addition to the mortgage purchases, the government agreed to provide guarantees on more than C$200 billion of bank debt to match bailouts by other governments.

Canada Mortgage and Housing Corp., a government-run agency, has already bought C$12 billion in mortgages from the nation's banks, giving them more money to lend to consumers and businesses. Canada's stock of residential mortgages is about C$773 billion, according to the finance department.

The government may also help company-run pension funds meet capital requirements, Flaherty said. The benchmark Canadian stock index had its worst monthly drop in a decade last month, eroding the value of pension fund assets and creating a potential funding gap. Prime Minister Stephen Harper's government also may relax pension fund rules to give them more time to make up any funding shortfall, as was done in 2006.

Capital Infusions

``I had more discussions with the private sector about what they might have to do in terms of the capital requirements for their funds,'' Flaherty said, after an interview with Bloomberg Television. ``We took steps in 2006 to allow more time for capital infusion, so that is something we could possibly do again.''

Flaherty said he plans to raise the issue with his provincial counterparts when they meet in Toronto on Nov. 3.

He also plans to renew his push for a single securities regulator, replacing 13 provincial and territorial agencies. Provinces including Quebec and British Columbia oppose a national regulator.

``The circumstances emphasize the importance of doing this,'' he said. ``I sense some softening'' from the provinces because of the global financial crisis.

Canada's financial system remains ``the soundest in the world'' and has weathered the global crisis better than many of its trading partners, Flaherty said. The government remains on track for a budget surplus this fiscal year, though next year will be ``challenging,'' he said.

He reiterated that he thinks the economy can avoid a recession, even as three of the country's biggest banks forecast a contraction.

``Our growth is small, but it's positive growth,'' Flaherty said.

To contact the reporter on this story: David Scanlan in New York at dscanlan@bloomberg.net.