Since the money markets seized up this past year, central bankers and policy-makers around the world have been scrambling to keep the financing taps open. The federal government made ensuring credit availability a central focus of Tuesday’s budget.

The budget touts a headline number of $200 billion in measures to support the provision of credit to households and businesses, but much of this reflects existing efforts.

Last year, the government pledged to purchase $75 billion of insured mortgages in an effort to bolster lending. In Tuesday’s budget, it announced that it will bump up that plan’s size by $50 billion, taking it to $125 billion, with the added purchases coming in the first half of fiscal 2010.

“Extending and enhancing this successful program will reassure lenders that stable long-term financing will continue to be available, helping them to continue lending to Canadian consumers and businesses,” the budget notes. “The program has facilitated a reduction in prime and mortgage rates since its introduction.”

On top of the added $50 billion in mortgage buybacks, the budget announced that up to $12 billion will be devoted to a new facility to purchase asset-backed securities underpinned by vehicle and equipment loans and leases.

This new initiative, known as the Canadian Secured Credit Facility, will work much the same way as the program to buy mortgages, except that it will focus on generating more credit capacity in the vehicle and equipment financing sector. The new facility will also be priced on commercial terms and is expected to generate a return for the government as a result. Federally regulated financial institutions will be eligible to sell into the new facility and provincially regulated firms may be eligible, with the approval of the finance minister.

Arriving at the rest of the $200 billion total gets a little fuzzier. Another $13 billion is expected to come through efforts to motivate additional financing by financial Crown corporations, such as Export Development Canada, the Business Development Bank of Canada and the Canada Mortgage and Housing Corp.

To get there, the budget proposes various changes, such as boosting the authorized capital limits of the EDC and BDC by $1.5 billion each. It is also establishing the new Business Credit Availability Program to improve access to financing through enhanced co-operation between private sector financial services institutions and the financial Crown corporations.

Through this program, the EDC and BDC will provide at least $5 billion in additional loans, the budget says. The government has also made available $2 billion in low-cost loans to municipalities through the CMHC and almost $3 billion in loans to support the automotive industry in Canada through the EDC. All told, it expects this to boost credit availability by $13 billion, but again, some of this was already in the pipeline.

In addition, the headline figure also includes the extraordinary liquidity being provided by the Bank of Canada, which, it reports, peaked at $41 billion in December, and now sits at about $33 billion. It also incorporates a new 10-year Canada Mortgage Bond, which was announced last year and the government indicates is expected to raise up to $10 billion in additional funding for financial institutions in the coming year.

The only other new source of funds comes via tweaks to the Canada Small Business Financing Program that is expected to generate another $300 million in additional lending. The budget proposes to increase the maximum eligible loan amount available under the program from the current limit of $250,000 to $350,000, and to $500,000 for loans made for acquiring real property; the claimable amount for loans above $500,000 rises to 12% from 10%.

Additionally, the budget proposes to expand the guarantee on wholesale funding that was introduced last year to the life insurance industry. The new Canadian Life Insurers Assurance Facility will provide insurance on wholesale borrowing by federally regulated life insurance companies, mimicking the Canadian Lenders Assurance Facility that was announced last November.

The budget indicates that this program was necessary “to ensure that life insurers, who access credit and compete for business at a global level, are not put at a competitive disadvantage relative to foreign insurers that benefit from guarantee programs provided by their home governments.”

It is also extending the deadline for issuing guaranteed instruments under the CLAF to Dec. 31 from April 30.

@page_break@The budget stresses that all these efforts are expected to generate a positive return, so they don’t carry a fiscal cost. That said, the government will have to borrow to make these various programs possible. And, to help manage all of these initiatives, it is also forming an advisory committee on financing, which will include both users and suppliers of financing, along with other experts. Its mandate will be to advise on financing conditions and the design, scope and scale of initiatives that aim to boost credit availability.

IE