CLAF

The acronym of the day:  CLAF.  It stands for Canadian Lenders Assurance Facility.  It's essentially loan insurance that the government has just created to guarantee credit among federally-regulated deposit-taking institutions. 

The goal of the CLAF is to encourage more lending in the midst of Canada's worst credit crisis in memory. 

The cost of the insurance isn't cheap, however.  It's 1.60%-1.85% of the loan amount.  As the government puts it, "it is being made available as a backstop in case conditions in global credit markets disrupt Canadian lenders’ access to the funds they need to keep lending."

Given the price, there's a fair chance it won't have any major uptake, or impact on reducing mortgage funding costs.  The CEO from low-cost lender ING was quoted by the Globe as saying, "Of the various options that we have to cost-effectively fund our business, this is not something we would probably be interested in."

The CLAF is totally voluntary and is set to expire next April 30.

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