Central bank hails commercial paper market support

The Bank of Canada applauded a move Tuesday fromCEOs of the country's major banks to affirm their supportfor the bank-sponsored asset-backed commercial paper market.

In a release, thecentral bank called the moveby the big banks a "further positive step to help re-establish well-functioning money markets in Canada."

The heads of Canadian Imperial Bank of Commerce, National Bank, RBC, Scotiabank and TD Bank Financial Group said earlier in the day they will "work together to ensure that markets for bank-sponsored asset backed commercial paper (ABCP) continue to perform satisfactorily."

The move comes after last week's credit crunch that led to big hits on stock markets. The market volatility was prompted by worries over the U.S. mortgage market, which caused liquidity problems for third-party ABCP in the world financial market.

The Bank of Canada said Tuesday it continues to watch Canada's financial markets and make liquidity available as required. The bank steppedin over the past weeks to inject liquidity into the market by buying billions of dollars worth of government securities from market participants and selling them back the next day.

On Monday, National Bank said it would spend about $2 billion to buy all the ABCP held by its mutual funds, retail clients and other groups. Similarly, Desjardins Group said Monday it will take charge of all ABCP assets held in its mutual funds.

Most of the country's big banks Bank of Montreal, CIBC, TD and Scotiabank said none of their money market mutual funds had any exposure to asset-backed commercial paper sponsored by non-banks.