Other measures included making it cheaper to use government insurance guaranteeing bank borrowing, and looser regulations for banks to give them more sources of funding.
The Bank of Canada also set up a term loan facility to lend C$8 billion to banks in four tranches, using their non-mortgage loans as collateral, as part of a plan by the Group of Seven rich nations to provide exceptional liquidity.
In addition to helping ease the credit crunch generally, the measures announced by Finance Minister Jim Flaherty were aimed at ensuring that Canada is able to compete on an equal basis with other countries.
"The government of Canada is prepared to take whatever steps are necessary to ensure that Canada's strong financial system is not put at a competitive disadvantage by developments in other countries," Flaherty said in a statement.
"The government will not allow Canada's financial system, which has been ranked as the soundest in the world, to be put at risk by global events."
He said the government would triple to C$75 billion the amount of insured mortgage pools it would buy by the end of the fiscal year on March 31. The assets are already insured by the the government's Canada Mortgage and Housing Corp.
"At a time of considerable uncertainty in global financial markets, this action will provide Canada's financial institutions with significant and stable access to longer-term funding," Flaherty said.
"This extension of the program to purchase insured mortgages will further support the availability of credit, which will benefit Canadian households, businesses and the economy. In addition, it will earn a modest rate of return for the government with no additional risk to the taxpayer."
The government will also reduce the base commercial pricing of the Canadian Lenders Assurance Facility by 25 basis points. It will also waive the 25-basis-point across-the-board surcharge for insurance provided under the facility until further notice, he said.
This facility, which guarantees borrowing by Canada's banks, was introduced on Oct. 23 to ease a lending crunch and put the banks on an equal footing with foreign competitors, but Flaherty said it had not been used so far.
The new pricing means the lowest price for insurance under the facility will be 110 basis points rather than the 160 basis points as announced on Oct. 23.
The Office of the Superintendent of Financial Institutions announced Tuesday an increase in the allowable limit of innovative and preferred shares in Tier 1 capital.
"This will provide Canadian financial institutions with more sources of funds to support lending in Canada. This will also ensure that similar decisions in other countries do not place Canadian institutions at a competitive disadvantage," Flaherty's statement said.
The statement also said the Bank of Canada, which repeated Wednesday that it would need to cut interest rates further, would continue to provide exceptional liquidity to the Canadian financial system as long as conditions warrant.
In the United States, the Bush administration has focused on recapitalizing banks with a $700 billion fund that initially was aimed at taking bad assets off the books of financial institutions.
U.S. Treasury Secretary Henry Paulson said Wednesday that the Treasury had approved dozens of bank applications to participate in the bailout program.
($1=$1.23 Canadian)
