Credit access looks to be improving

OTTAWA -- Signs emerged on Tuesday that banks and other market players might have enough credit at their disposal for the time being, as simultaneous auctions held by the Bank of Canada and Canada Mortgage and Housing Corp. aimed at pumping additional liquidity went under subscribed.

Analysts said this is the latest sign that Canadian efforts to improve credit access during this financial crisis are working.

"The [market] does not have as much pressing need for financing as previously," said Michael Gregory, senior economist at BMO Capital Markets. Initiatives such as the CMHC auctions are "helping at smoothing out the rough edges," he added.

Grant Bishop, economist at Toronto-Dominion Bank, said market demand for financing might be tempered by a 14% year-over-year increase in the amount of cash coming to banks' in personal savings and chequing accounts. This, he said, is likely the result of consumers cashing out their securities and stowing away the cash until the crisis subsides.

Once consumers withdraw that cash, Mr. Bishop said, the demands from banks might shoot upward again.

The Bank of Canada was prepared to make $1-billion available on Tuesday -- with the wrinkle being that it would be available to a wider group of players than is normally the case, and that it would accept non-government securities, such as investment-grade paper, as collateral. Alas, the bank lent $750-million of that amount, at average yield of 0.773%, for a 28-day period.

As that was going on, CMHC held another auction as part of its effort to acquire up to $125-billion of insured mortgage pools. But for the fourth straight time, the auction went under subscribed -- with only $1.57-billion of mortgages acquired, short of the $4-billion the insurer was prepared to take.

The auctions are aimed at helping banks fund new loans to consumers and businesses. But CMHC has bought fewer mortgages than it offered at its last four auctions, including Tuesday's, and has reduced the amount offered to $4-billion from $8-billion since Feb. 9.

The first six auctions through Jan. 23 were fully subscribed. To date, $55-billion of mortgages has been purchased, versus government offers to buy $64-billion.

Mortgage rates have declined since the first auction was held on Oct. 16. The five-year fixed rate was 5.79% on March 18, compared with 7.2% on Oct. 15, according to Bank of Canada figures.

Karen Kinsley, CMHC president, told members of the Senate finance committee the agency believes there is "a fair amount of liquidity" in the system as a result of the mortgage auction scheme.

"I don't think we would say that the program isn't going to be taken up as we go forward, but I think that given the pace that we've been operating at, we're probably going to want to slow it down a bit given the needs that lenders have at the moment," she said.