Chapter 4 – Government in Canada

Government – backed interbank lending program up and running.

http://www.financialpost.com/news/story.html?id=1332885

Summary:
The department of Finance has informed banks that it can now tap into an insurance program that guarantees interbank lending, four months after the government announced its creation. The chartered banks, on the other hand, are not expected to line up and seek help, observers say, in large part thanks to their solid balance sheets that has allowed them to tap credit. More conservative lending practices and banking regulations helped the Canadian banks avoid most of the US $1.1-trillion in debt-related write downs and losses taken by finance companies worldwide.

Government Borrowing:
All levels of government in Canada borrow money in order to pay for expenditures. Government borrowing is done by selling various types of securities to the public. With the efforts of the Department of Finance, this offers support to Canadian chartered banks, but for its part, the Canadian Bankers Association said in a statement that its members "won't necessarily need to use this facility, but it's good to know it is there as one more tool in the toolkit." Mr. Drummond, chief economist at Toronto-Dominion Bank, states that “Canadian banks have been able to obtain short-term financing through the Bank of Canada, via its buybank of government securities; and medium-term financing through Ottawa's acquisition of insured mortgage pools.”

Reflection:
Looking back into the recession, many American banks went bankrupt because they could not keep up with their debts. As a result, many businesses were at stake and once one bank falls, others follow suit. Ever since the bank fell, many people were afraid of losing their jobs because of poor financial relationships between businesses and households. Many people are refraining from purchasing too freely and also limiting their spending. I believe the Canadian banks are working very well in trying to evade all the havoc that the American banks have aroused, by being careful with their borrowing and their balance sheets.