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UNCLAS SECTION 01 OF 03 OTTAWA 001395 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB (DAS NELSON); EEB/OMA (SAKAUE, WHITTINGTON); 
E (SMITHAM); EEB (GUEST); WHA; WHA/CAN 
TREASURY FOR NEPHEW; IMB (MURDEN, MONROE, CARNES) 
 
E.O. 12958: N/A 
TAGS: CA ECON EFIN
SUBJECT: CANADA: INFORMATION FOR SUMMIT ON FINANCIAL 
MARKETS AND THE WORLD ECONOMY 
 
REF: A. STATE 114420 
     ¶B. OTTAWA 1372 
     ¶C. OTTAWA 1362 
 
Sensitive but unclassified.  For internal USG use only. 
Please protect accordingly. 
 
¶1. (sbu) Ref a requests information regarding Canada's 
perspectives and concerns regarding the November 15 Summit on 
Financial Markets and the World Economy -- and also regarding 
the financial crisis' impact on Canada and government actions 
to address the crisis.  Also per ref a, Econcouns John 
Carwile (tel: 613-688-5227; email: carwilejl@state.gov) is 
post's primary point of contact on financial crisis/summit 
matters. 
 
¶2. (sbu)  The following points are keyed to ref a's inquiries: 
 
¶I.  Key Objectives and Priorities 
 
Canada is looking to support G-7 -- and in particular, U.S. 
-- leadership in crafting an approach that uses market-based 
solutions and that respects a liberalized trading system. 
Canadian officials and other G8 diplomats here tell us that 
Canada is still formulating its specific approach to the 
Summit.  Canada has said publicly and privately that the 
draft Communique is very much headed in the right direction. 
We understand that Canada will be looking for the following 
general outcomes: 
 
-- Canada wants to work closely with the United States and 
other like-minded countries to fight off ideological attacks 
against capitalism and open markets at the Summit.  Canada 
believes that the financial crisis arose from regulatory 
failure, and not from a failure of open markets; 
 
-- Canada believes that new regulatory structure is needed, 
and that many countries will call on the United States to 
increase its own financial regulation; 
 
-- Canada is keen to have a defined, action-oriented work 
plan to guide near-term work after the Summit.  It is 
important, Canada believes, that the all Summit participants 
support the work plan; and 
 
-- Canada supports including the G-20 at the Summit, but says 
there "are a number of very angry members of the G-20 who 
feel that the G-7 should have protected them from this 
crisis."  Canada hints that they will want to play an 
intermediary role between countries calling for a 
dramatically new global financial architecture and those 
having qualms about giving the G-20 a bigger seat at the 
table.  (Comment:  We suggest that such a role for Canada 
might be discussed by our Sherpa/sous-sherpas with their 
Canadian counterparts.  End comment) 
 
II.  Key Concerns 
 
Canada wants to ensure that G-7 stewardship remains central 
to the international financial system -- and that a 
considered follow-on process identifies the causes of and the 
principles/actions for addressing the crisis.  Canada wants 
to ensure that the international financial remains 
Qto ensure that the international financial remains 
market-based.  From Canada's domestic economic perspective, 
the two most important issues are overall liquidity and 
 
OTTAWA 00001395  002 OF 003 
 
 
financial guarantees.  Canadian officials are confident in 
their banks' health, but are hoping to minimize the spillover 
effect from the U.S. markets. 
 
III.  Impact of the Financial Market Crisis on the Financial 
Sector 
 
The World Economic Forum ranks Canadian banks as the world's 
healthiest; no Canadian bank is near collapse.  Canada's 
regulatory oversight has strict reserve and capital 
requirements -- and banks are well-capitalized.  Canadian 
investment banks are part of retail banking -- and brokerages 
meet regulatory requirements pertaining to retail banking. 
Canadian banks carry a small percentage of sub-prime 
mortgages (five to six percent of the Canadian mortgage 
makert is sub-prime; banks hold some 75 percent of Canadian 
mortgages).  Nevertheless, the Toronto stock exchange has 
fallen dramatically this year.  Canada has also suffered from 
tightening credit flows with the large spreads between Bank 
of Canada lending rates and commercial bank lending rates. 
Retail banks, for example, only passed along to consumers 
half of the 50 basis cut in the Bank of Canada prime rate to 
consumers on October 8.  (Comment:  One senior private bank 
official told us October 29 that the domestic banking sector 
has enough liquidity, and is being hurt by lower than normal 
demand for loans -- primarily from the manufacturing sector. 
End comment) 
 
IV.  Actions Taken to Address the Financial Crisis 
 
The Bank of Canada acted with the Federal Reserve, Bank of 
England, European Central Bank, Sveriges Riksbank (Sweden), 
and Swiss National Bank to cut their overnight target rate by 
50 basis points on October 8.  The Bank of Canada further 
lowered its rate to 2.25 percent on October 21. 
www.bank-banque-canada.ca/en/press/2008/pr08- 21.html and 
www.bank-banque-canada.ca/en/fixed-dates/2008 /rate 211008.html 
 
The Bank of Canada will provide up to C$ 20 billion in 
liquidity to banks and has broadened the range of collateral 
that the Bank will accept. 
http://www.fin.gc.ca/news08/08-074e.html 
 
The Bank of Canada and the Federal Reserve have a reciprocal 
currency arrangement -- currency swap facility -- of US$ 30 
billion (if needed) to maintain USD liquidity in the Canadian 
financial institutions.  To date, the Bank of Canada has not 
needed to use the arrangement. 
www.bank-banque-canada.ca/en/notices fmd/2008/not071008.html 
 
Finance Canada will buy up to C$ 25 billion in insured 
mortgages through the Canadian Mortgage and Housing 
Corporation to provide Canadian banks with cash with an aim 
to maintain the availability of longer-term credit for 
consumers, homebuyers, and businesses. 
http://www.fin.gc.ca/news08/08-075e.html 
 
Finance Canada established the Canadian Lenders Assurance 
QFinance Canada established the Canadian Lenders Assurance 
Facility to federally insure private interbank lending -- as 
long as the debt has at least a three-month term.  The 
Facility will expire on May 1, 2009.  Participating financial 
institutions will pay a base fee of 1.35 percent, plus a 
surcharge ranging from 25 to 50 basis points, depending on 
their credit ratings.  (Canada's action parallels steps taken 
by other countries to guarantee loans, and is designed to 
 
OTTAWA 00001395  003 OF 003 
 
 
keep Canadian banks competitive in the international lending 
market.)  http://www.fin.gc.ca/news08/08-080e.html 
 
Canada has decided -- so far -- not to increase the C$ 
100,000 federal insurance on deposits in Canadian banks. 
 
¶V.  Current economic situation/near-term outlook. 
 
See Ottawa 1372. The U.S. Department of Treasury also has 
provided post with this information:  "The Bank of Canada 
"estimates growth to decelerate to 0.6 percent in 2008, and 
to be 0.6 percent in 2009.  Canadian credit conditions have 
deteriorated significantly while equity prices have plunged 
by over 25 percent.  Core inflation remained within the 
central bank's target range of one percent to three percent; 
inflation risks are likely diminishing from a weakening 
economy and declining global commodities prices.  The health 
of the auto sector is at the top of Canadian officials' 
minds." 
 
Visit Canada,s Economy and Environment Forum at 
http://www.intelink.gov/communities/state/can ada 
 
BREESE