By Tara Perkins in the Globe & Mail:
One of the two main programs Ottawa has created to help the banks - a guarantee of their debt - isn't actually running yet, three months after it was announced.
The temporary emergency program, unveiled in October and extended in Tuesday's budget, has been widely lauded as an important measure to help Canadian banks stay on a level playing field with foreign competitors that have been receiving similar government support.
When it was announced, Finance Minister Jim Flaherty said it was "an important part of Canada's implementation of the recent G7 plan of action to stabilize financial markets, restore the flow of credit and support global economic growth."
The program was designed as a backstop, and a number of bank analysts and other market observers have been unsure whether banks were tapping into it. As it turns out, however, banks aren't actually able to gain access to the program yet.
A Department of Finance official confirmed that yesterday, and added that the program, called the Canadian Lenders Assurance Facility (CLAF), is expected to be operating shortly.
The legal agreements are being finalized in consultation with internal and external counsel, the official said. At the same time, credit rating agencies are being consulted to ensure the program is assigned a triple-A rating, which is important to ensure that Canada's banks are not put at a competitive disadvantage in accessing global capital markets, the official said.
"I think the market looks forward with anticipation to this thing getting off the ground," said Andrew Fleming, a senior partner at Ogilvy Renault LLP. "There is a lot of work being done amongst the market participants, and we're all anxious that this thing get put on the front burner and get done."
When Mr. Flaherty announced the program on Oct. 23, he said it would expire six months after its start date, which was expected to be the beginning of November.
The program was designed to offer insurance for some debt of banks and other federally regulated deposit-taking institutions. It is intended to help banks secure access to longer-term funds to continue lending to consumers, home buyers and businesses, the government said.
"The government of Canada is acting today to ensure that financial institutions in this country are not put at a competitive disadvantage when raising funds in wholesale markets to lend to consumers and businesses," Mr. Flaherty said in October.
In this week's federal budget, he extended the expiration date of the program from April 30 to Dec. 31. The Finance Minister also announced that a similar program, "modelled on the CLAF," would be created for life insurers, to ensure that they "are not put at a competitive disadvantage relative to foreign insurers that benefit from guarantee programs provided by their home governments."
The government released a number of details on how the CLAF would work back in November. For instance, it said it would use reasonable efforts to pay up under the insurance as soon as possible in the event it was called upon to do so, but would have up to 30 days if necessary. The government is believed to be considering changes to some of those provisions, largely in an effort to bring the major credit rating agencies on board.