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

Finance Minister Jim Flaherty pledged today to triple the amount of mortgages the government can buy from banks to as much as 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 that today's move ``will make consumer and business loans more affordable.''

Canada and the rest of the Group of 20 industrialized and emerging economies 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.

Today'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.

Paulson Plan

Flaherty also said today that no decision has been made on whether to provide aid for the country's automakers, who are struggling because of a lack of consumer demand in the U.S.

U.S. Treasury Secretary Henry Paulson today said he plans to use the second half of a $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets.

The U.S. recession and the global financial crisis are ``major shocks'' to Canada that will likely require more interest-rate cuts, Bank of Canada Senior Deputy Governor Paul Jenkins said today in Toronto. 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.

Bank of Canada

Canada's central bank today also said it will inject an additional C$8 billion into the banking system to temporarily buy up ``non-mortgage loan portfolio'' assets. And the state- owned Canada Mortgage and Housing Corp. today bought C$7 billion of mortgages for five years at an average yield of 3.78 percent, in the third phase of the purchase program.

The mortgage purchase plan has been the ``most effective'' measure and will remain more popular than loan insurance because it's a cheaper way of raising cash, said Eric Lascelles, chief economics and rates strategist at TD Securities in Toronto. Taken together, the steps should reduce bank financing costs and ``possibly'' make credit cheaper to consumers and companies, he wrote today in a note to clients.

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.

Commercial banks earlier this year initially 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.

Auto Industry

While Canada hasn't decided whether or how to help struggling automobile manufacturers, Flaherty said they face ``a serious situation'' which the government is ``monitoring.''

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.

Industry Minister Tony Clement is scheduled to give a briefing to unspecified ``Canadian industrial leaders'' in Toronto today at 4:15 p.m. New York time.

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 12:24 EST