International Policy Responses
to the Financial Crisis: A Canadian Perspective
By Alexandre Laurin,
with Finn Poschmann and Robin Banerjee
The recent financial crisis has prompted governments around the world to respond with both conventional and uncon-
ventional economic policy tools. It has also given rise to calls for greater international coordination, or even a complete
overhaul of the global financial regulatory architecture. This e-brief summarizes how governments around the world
have responded to the current financial crisis, and draws some short- and long-term lessons for Canada.
Review of Government Interventions
Among the first government responses were monetary interventions; that is, reductions in monetary policy interest
rates and provision of liquidity to the banking system. Almost every country reduced its policy interest rate. Canada,
which reduced its rate by 75 basis points starting at the beginning of September 2008, reflected both the international
trend and policy coordination among major central banks.
Steps to provide liquidity to the banking system have varied (Table 1). The Bank of Canada and most others have
directly increased liquidity available at regular auctions. Canada and Australia widened the range of assets the central
bank can accept as collateral when lending and others, such as Indonesia and Saudi Arabia, have lowered the reserve
requirements for banks.
Government purchases of bank assets also provide liquidity to the banking system. The United States original-
ly pledged more than $700 billion to buying distressed assets – the plan is now refocused on buying equity stakes and
boosting consumer credit availability. Canada’s plan was different – an initial schedule to buy $25 billion (now $75
billion) of government-insured mortgages from banks, healthy assets for which the government was already the guaran-
tor of default risk. Australia also announced a plan to purchase residential mortgage-backed securities from banks.