The government of Canada will buy up to another $50 billion in insured mortgages to help keep credit markets moving, Finance Minister Jim Flaherty said Wednesday.

The federal government plans to buy up to $75 billion in federally insured mortgage-backed securities, including up to $50 billion announced Tuesday, in a move to inject money into the system.

In October, the government said it would buy $25 billion in mortgage pools in a similar move.

How it works:

  • Institutions lend money to Canadian borrowers.
  • Pools of mortgages are packed together and sold to investors.
  • The government of Canada, through Canada Mortgage and Housing Corporation (CMHC), will buy up the pools.
  • The money flows back to the lenders and the loans come off their books

Flaherty has said the securities the government is buying will generate more money than it costs the government to borrow the funds to buy.

The government will finance the move through increased issuance of Treasury bills and bonds.

Speaking in Toronto, Flaherty said the government decided to make the move on hearing that lending markets in the country were freezing up.

He said the loan purchase will help make loans more affordable and available for Canadian borrowers.

"Despite some improvement recently, we have to expect an extended period of stress in global credit markets," Flaherty told reporters on Wednesday.

"This could limit the availability of credit to Canadian households and businesses in the months ahead."

Flaherty said he met earlier in the day with senior private-sector banking officials and reminded them that it remains up to the private sector to keep extending loans to individuals and businesses, adding it is the government's role to step in when markets are "profoundly disrupted."

Flaherty also announced the federal government is lowering the rate it charges banks to insure their wholesale borrowing.

The Bank of Canada also said Wednesday it will pump another $8 billion in liquidity into the financial system through new one-month lending.