Bank Lending Policy Initiative by MOF

Loosen your purse strings, Canada tells banks

OTTAWA (Reuters) - Canadian Finance Minister Jim Flaherty delivered a blunt message on Wednesday to the country's banks, telling them to loosen their purse strings and summoning them to a meeting to press the point.

"There is evidence now of a constriction in credit in Canada, not only for smaller businesses and for families, but for larger businesses. So this is something that we are going to continue to address with our financial institutions. In fact a meeting is being set up now," he told CTV television.

"We expect our banks to make lending available, to have credit available and affordable in Canada. We're acquiring a lot of their mortgages ... up to C$75 billion worth. We've given a guarantee with respect to some of their obligations. So this is a two-way street. We expect credit to be available through our financial institutions."

I have had many borrowers ask me why it seems so difficult now to obtain mortgage financing, despite the fact that the official policies regarding loans haven't really changed very much over the past few months - yet loans seem virtually unavailable no matter what the applicant presents in terms of qualifications.

Anecdotally I have been told by a loan manager for a local community credit union that the credit union hasn't made a new mortgage loan since May of 2008, six months in total. The real estate market in that community is completely dead,and last month there were only two sales in the entire community.

So do you think that these items are related? You bet they are. Banks and Credit Unions claim that their lending policies haven't changed... but they aren't lending money.

What the Minister of Finance isn't saying, is that the banks are actually directly creating the current economic crisis in Canada, even though there was no crisis until they made one! The real crisis in confidence is NOT the consumer but rather tha corporate elite at the banks, who no longer trust each other or their institutions. Bank Paper is not considered worth the paper it is written on, or the electrons used to count it. The feds have done their share all around the world. It is time for the banks, worldwide, to get over it... and do what they need to do to begin lending money again.

If they don't this recession will go from a serious recesssion to a full blown world wide depression, the end of which will be uncertain at best.

And it will have been created almost entirely by bankers, because they don't trust each other. At some point these people need to be held accountable for their completely irresponsible behavior. It may be bad banking to make loans in an environment of uncertainty, but it is bad citizenship to withhold credit from the entire world because of corporate cowardice.