Financial Update

· TSX-302.47pts (Reuters) as analyst downgrades of energy and fertilizer companies combined with a steep drop in crude prices dragged the resource-heavy market into a broad selloff. Also Japanese auto giant Toyota Motor Corp. projected its first-ever full-year operating loss.
· DOW -59.42pts
· Dollar +.26c to $82.03US.
· Oil -$2.45 to $39.91US per barrel. While prices pose a challenge for some investors, the declines in oil prices could have a positive impact on consumers, suggested Bruce Latimer, a trader at Dundee Securities. "You're also seeing gasoline very, very cheap out there," he said. "And that's certainly going to put a few more dollars into consumers' pockets."

· Gold +$9.80 to $847.20US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices

Big banks face rising pressure to loosen credit

Flaherty certain to demand action when he joins Carney in meeting with financial CEOs next month Les Whittington

OTTAWA–The big banks are facing mounting pressure from Ottawa to do more to make credit available to Canadians during the current economic meltdown.

But Finance Minister Jim Flaherty's ability to convince the banks to loosen their lending practices may depend largely on his political skills.

After years of passing up opportunities to tighten regulation of bank practices, Parliament has few weapons at its disposal –other than marshalling public opinion – when it comes to a standoff with the country's biggest financial institutions.

Flaherty, who will join Bank of Canada Governor Mark Carney in a closed-door meeting with bank CEOs in January, is certain to demand action at a time when complaints about a credit squeeze are echoing through business and government right across the country.

"Access to credit is a huge issue – the minister hears about it in every pre-budget consultation he does, and it's something that we need to continue pressing on," a senior government official said yesterday.

Flaherty has made it clear he feels his extensive efforts to help the banks weather the global credit crunch aren't being reciprocated. And the official points out that these special measures by the federal government are temporary and don't have to be extended.

At issue are the Harper government's plan to purchase $75 billion in bank-held mortgages and its guarantee of up to $200 billion in bank borrowing. Both programs, which are meant to free up credit for business and consumers, expire in the spring.

Asked yesterday whether Flaherty would extend them in the current atmosphere between Ottawa and the banks, the official said pointedly, "Generally speaking, if programs are not effective, you don't continue with them."

With businesses closing and jobs disappearing as the economy plummets ever downward, the ability of companies to obtain loans has become a matter of national urgency.

Quebec Finance Minister Monique Jérôme-Forget said after a meeting of federal-provincial treasurers this week the credit crunch was the most pressing topic raised in the closed-door conference.

And Greg Selinger, Manitoba's representative, said ominously that the ministers from across the country ought to have a talk with the bank CEOs about Canada's "national interests."

When Parliament resumes in late January, the bank chiefs can expect to be called on the carpet by the House of Commons finance committee to explain their lending activities, says Dan McTeague, the Liberal consumer affairs critic.

"Members of Parliament like myself have so far received what is a very disturbing number of calls from creditworthy clients who are having a tough go of it and are prepared to take it up with MPs on the hope that we would demand some accountability from the chartered banks," said McTeague (Pickering-Scarborough East).

Previewing his meeting with senior bankers next month, Flaherty says he will expect them to show that they are making credit more widely available.

And, in an unusual move, Carney has publicly urged the banks not to tighten up lending.
Through the federal finance department, the Office of the Superintendent of Financial Institutions and other agencies, Ottawa scrutinizes the banks' operations, their solvency and their consumer-related practices. But the Bank Act gives the government very little power to tell the banks how to operate.

"There's nothing he can do other than threat," Garth Turner, the former MP and financial commentator, says of Flaherty. "He has no big stick to hold over the banks."

And Flaherty's face-to-face talks with bank chief executives promise to be confrontational. Canada's major banks say they are being unfairly singled out for blame in a credit crunch that is affecting everyone.

Nancy Hughes Anthony, head of the Canadian Bankers Association, acknowledges obtaining loans may be getting tougher for some companies.

"With the Canadian and American economies slowing, there is no question that some of Canada's major industries are going through tough times. When providing credit, sound business practices require that such changing economic conditions be taken into account by lenders," she said in a statement this week.

But the banks maintain it is other lenders – not bankers – who are clamping down on credit.
"As many observers (including Carney) have noted, financing through non-bank sources is less and less available to Canadian businesses," Hughes Anthony said.

Duff Conacher, who heads the Canadian Community Reinvestment Coalition, says successive Conservative and Liberal governments have failed to provide the tools federal regulators need to accurately assess banks' lending practices. He advocates expanding the powers of the Financial Consumer Agency of Canada and the federal Competition Bureau to enable Ottawa to audit the banks' books.