Nov. 12 (Bloomberg) -- Canada expanded measures to help banks get through a global credit crisis and keep up with backstops offered in other countries, buying up more mortgages and other debt and offering cheaper loan insurance.

Finance Minister Jim Flaherty today pledged to triple the amount of mortgages the government can buy from banks to C$75 billion ($61 billion). He also reduced the cost for banks to tap a government loan insurance program by 50 basis points after it went unused at the initial premium of as much as 185 basis points, or 1.85 percentage points.

Predicting an ``extended period of stress,'' in credit markets, Flaherty, 58, told reporters in Toronto the moves ``will make consumer and business loans more affordable.''

Canada and other economies in the Group of 20 promised last weekend to act ``urgently'' to stem a global financial crisis and recession. Flaherty repeated today that while Canada's banks are the world's safest, he wants to be ``proactive'' in protecting them in case problems deepen, and he doesn't want them to fall behind foreign competitors who may get an advantage from government financing.

Commercial banks have faced higher borrowing costs during the crisis and earlier this year resisted matching a Bank of Canada rate reduction by cutting the prime rates they charge their best customers for the first time since the Asian financial crisis in 1997.

`Constructive Step'

The yield on one-month commercial paper jumped to 78 basis points higher than the Bank of Canada's benchmark rate on Oct. 3, the highest since at least 1992. The gap was 44 basis points today, still double where it was on Sept. 22.

Flaherty's announcement was a ``constructive step'' that ``helps ensure consumers and businesses have access to credit and Canadian banks continue to operate from a position of strength,'' said Gordon Nixon, chief executive officer of Royal Bank of Canada, the nation's biggest lender by assets, according to a statement.

The finance minister met with banking executives earlier today in Toronto to discuss the changes.

Growth in Canada will slow to 0.6 percent this year, the least since 1991, the central bank said in an Oct. 23 forecast. The economy is suffering from weak demand in the U.S. for automobiles and lumber and slumping prices for commodities, which generate about half the country's export revenue.

Possible Deficit

Flaherty said the slowdown ``may mean'' the government next year will post its first budget deficit in more than a decade, adding he'll release updated projections in a ``couple of weeks.''

Flaherty also is under pressure to relax rules for the country's pension funds and provide aid to the struggling automobile industry.

The minister said no decision has been made on whether to provide aid for automakers, and that he hopes he can reach agreement with Canada's provinces by next month on a ``comprehensive'' package to help corporate pension funds. Such pension funds have been lobbying the government for more time to make up any funding shortfall.

Canada's central bank today said it will inject an additional C$8 billion into the financial system to temporarily buy up ``non-mortgage loan portfolio'' assets.

Separately, Senior Deputy Governor Paul Jenkins told a business conference in Toronto that the U.S. recession and global financial crisis are ``major shocks'' that will likely require more interest-rate cuts in Canada. He made the comments in a slide-show presentation of a speech that was closed to the media and didn't speak to reporters afterwards.

Taxpayer Risk

Unlike other countries, Canada isn't acquiring stakes in its financial institutions, Flaherty told the same audience after his press conference, adding he's concerned some nations are buying stakes in their banks without an ``exit strategy.'' Canada's funding measures pose ``no additional risk'' to taxpayers, he said.

The state-owned Canada Mortgage and Housing Corp. already has bought C$19 billion in mortgages from banks, including a purchase today of C$7 billion of the assets for five years at an average yield of 3.78 percent. The average yields in two earlier auctions were 4.10 percent and 4.24 percent.

The purchases have been the ``most effective'' measure and will stay more popular than loan insurance because they represent a cheaper way of raising cash, said Eric Lascelles, chief economics and rates strategist at TD Securities in Toronto. Taken together though, the steps should reduce bank financing costs and ``possibly'' make credit cheaper to consumers and companies, he wrote in a note to clients.

Auto Industry

While Canada hasn't decided whether or how to help struggling automobile manufacturers, Flaherty said they face ``a serious situation'' that the government is ``monitoring.'' He said he's concerned about possible ``backlash'' from taxpayers if aid went to companies that end up closing anyway.

The U.S. Congress has already passed a $25 billion aid package for General Motors Corp., Ford Motor Co. and Chrysler LLC, though they're seeking $50 billion more to help them retool plants amid the worst auto market in 25 years, according to a person familiar with the matter.

Those Big Three companies have plants in Ontario, Canada's industrial heartland and most populous province, and are among the country's biggest private-sector employers.

To contact the reporter on this story: Theophilos Argitis in Toronto at targitis@bloomberg.net; Greg Quinn in Ottawa at gquinn1@bloomberg.net.

Last Updated: November 12, 2008 15:09 EST