Someone finally understands that the CB demanding collateral from its own regulated banks is redundant for ‘local currency’ lending to member banks.
The Fed should have done this long ago and saved a year of financial turmoil, as I’ve been proposing for a long time.
This means bank failures will be due to solvency, and not liquidity.
By Kevin Doherty
OTTAWA ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Â Canada’s government will guarantee the lending the country’s banks do with other financial institutions.
Finance Minister Jim Flaherty said Thursday the government is establishing the Canadian Lenders Assurance Facility on a temporary basis to backstop wholesale lending.
Mr. Flaherty said he is establishing the lending facility to ensure Canadian banks aren’t left at a competitive disadvantage. More than a dozen countries have pledged hundreds of billions of dollars to guarantee interbank lending.
Banks will access the insurance from the facility on commercial terms. Mr. Flaherty said there will be no cost to taxpayers.
“This is a proactive step,” Mr. Flaherty told reporters. “There is this concern that our institutions could be disadvantaged competitively.”