Financial Update

· TSX -105.44pts
· Dow -161.52pts
· Dollar -.27c to $96.50US.
· Oil -$2.76 to $106.61US per barrel pressured partly by falls in demand in the United States, the world's top energy consumer. Fears the crisis in the financial sector could tip the global economy into recession has also weighed on the market
· Gold +43.30 to $903.90US per ounce
Further to discussions about cost of funds increasing and the banks saving room on their balance sheet for only their own business and not for non bank lenders as was previous practice…from CBC news today, the BOC has made available $2B to chartered banks to encourage them to lend money and help improve liquidity in the credit markets.
An interesting comment is found about halfway down:

"But in Canada it really is a function that the (chartered) banks are being unusually cautious and the Bank of Canada is looking to grease the wheel a little bit."
Lascelles said Canadians have enjoyed reasonable access to credit in the past year in the wake of the meltdown in the U.S. subprime mortgage business.

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Canadian central bank antes up $2 billion in liquidity to loosen credit markets

Published: Tuesday, September 23, 2008 12:08 PM ET
Canadian Press: Julian Beltrame, THE CANADIAN PRESS

OTTAWA - The Bank of Canada said Tuesday it will make another $2-billion available this week to commercial banks, the second special injection of funds that it has made into the financial system in recent days.

In essence, the central bank is making a total of $4 billion in extra money available to the system in the short term in order to keep commercial lending flowing in difficult times.

The central bank said Tuesday it will relax credit conditions to allow the chartered banks to borrow up to an additional $2 billion for 84 days starting Sept. 24. That injection matures Dec. 18.

At the same time, it announced that last week's $2-billion purchase and resale agreement - which expires Oct. 17 - will be extended for an additional 27 days, until Nov. 13.

Global financial markets were in danger of seizing up last week following the rapid collapse of several large Wall Street titans that had became overexposed to the U.S. subprime mortgage crisis.

The Bush administration has proposed a US$700 billion rescue package from the U.S. government to prevent more failures and restore confidence in the American financial system.

By those standards, says TD Bank economist Eric Lascelles, what Canada is doing is small potatoes.

"To the extent that the U.S. is effected, Canada always gets painted with the same brush," he said.

"But in Canada it really is a function that the (chartered) banks are being unusually cautious and the Bank of Canada is looking to grease the wheel a little bit."

Lascelles said Canadians have enjoyed reasonable access to credit in the past year in the wake of the meltdown in the U.S. subprime mortgage business.

Meanwhile, Finance Minister Jim Flaherty and Prime Minister Stephen Harper have sought to reassure Canadians in the past few days that Canada's banks are fundamentally sound, saying they are better financed than their U.S. counterparts.

In a conference call with reporters Monday, the finance minister said Canada would not be following the same route as the U.S. in trying to buy up toxic assets to ensure the stability of its financial institutions. Nor is there need, Flaherty said.

"We do not see that type of risk with Canadian financial institutions in banking or insurance," Flaherty said.

The central bank's two-page announcement Tuesday included a long list of collateral it will accept from financial institutions seeking to dip into the short-term loan fund.

These include:

-Securities issued by the federal or provincial governments;

-Government of Canada stripped coupons and residuals;

-Bankers' acceptances and promissory notes;

-Commercial paper and short-term municipal paper;

-Corporate, municipal and foreign-issuer bonds subject to specified credit ratings;

-Asset-backed commercial paper (ABCP) of eligible programs,

-And marketable securities issued by the U.S. Treasury.

The bank said the measures are needed to support the efficient functioning of financial markets, and it will continue to provide liquidity as long as required.