The federal government warned "a couple" of Canadian banks that their capitalization levels were on the brink of falling below accepted standards long before the credit crunch disintegrated into an outright global financial crisis, Finance Minister Jim Flaherty disclosed today.

Speaking to reporters in Toronto, Flaherty said the government began scrutinizing Canadian banks' capital rates following the onset of the credit crunch in August 2007, adding those efforts continue to the present day.

"We monitored carefully the capitalizations of our banks. And we had a couple of financial institutions in Canada that ran the risk of falling outside of the capitalization requirements in Canada - which are among the highest in the world," Flaherty said at a press conference to discuss an upcoming G7 meeting in Washington.

"We required them, through the Office of the Superintendent of Financial Institutions, to maintain the appropriate capital requirements and to raise capital as necessary, which was done. Which was done months ago.

"We have continued, and I have been involved in making sure that the Department of Finance and the Office of the Superintendent of Financial Institutions strictly monitor the capitalization requirements which we imposed on banks. So that I can say with confidence (to) Canadians today that are our financial institutions are well-capitalized in Canada, which cannot be said in a number of another countries in the world."

When pressed for specifics, Flaherty declined to say which Canadian banks were in danger of breaching capital requirements.

In January, however, Canadian Imperial Bank of Commerce announced plans to raise $2.75 billion by selling stock, most of it to blue-chip investors, in an effort to repair its balance sheet. Last week, CIBC struck a separate $1.05 billion (U.S.) agreement with a fund arranged by American private equity group Cerberus Capital Management to lower its exposure to the U.S. residential mortgage market and shore up capital.

CIBC has taken about $7.55 billion (Canadian) in debt-related writedowns since America's subprime mortgage market imploded last year, the most of any Canadian bank. The running tally of the "big six" now stands at about $11.6 billion, a mere drop in the bucket when compared to the near $600 billion (U.S.) in losses and writedowns posted by banks and security firms worldwide.

"I can reassure Canadians that we will watch very closely and not just lately. We've been watch very closely for a long time, and monitoring our financial institutions - not just our banks but our insurance companies closely," Flaherty said.

"I can assure Canadians that they are not only solvent but that they are within the capitalization requirements that we insist upon in the government of Canada which are among highest in the world."

Flaherty's comments about Canadian banks came on the heels of a co-ordinated round of interest rate cuts from the world's major central banks. British authorities, meanwhile, announced a whopping 50 billion-pound government-backed rescue package for that country's teetering financial institutions. Those dramatic efforts to unclog credit markets come on top of last week's approval of a $700 billion (U.S.) bailout for Wall Street banks.

Flaherty, will meet Friday in Washington with finance ministers from industrial countries to co-ordinate efforts to deal with the global economic crisis.

Earlier today, the Bank of Canada and other central banks cut interest rates by half a percentage point in a co-ordinated effort to stimulate lending and economic growth.

Flaherty said an International Monetary Fund report released Tuesday shows Canada will lead G-7 economies in 2009, with growth of 1.2 per cent, though overall global growth will slow down.

Meanwhile, the U.S. is forecast to grow only 0.1 per cent and Europe 0.2 per cent.

The minister also said he believes the Bank of Canada has done a sufficient job so far in providing money – or liquidity – to the markets.

Flaherty said he wouldn't advise Canada's banking system to decide whether to pass today's interest rate cut onto consumers.

"I don't give the banks guidance on what they should do or shouldn't do," he said.

"They respond to the steps taken by the Bank of Canada as they see fit. We have a competitive banking system."

Michael Goldberg, a financial services analyst with Desjardins Securities, said the British bailout package coupled with yesterday's $10 billion common stock offering by Bank of America should help restore confidence in the financial system but also "heighten near-term uncertainty" for Canadian banks.

"These developments raise two questions for Canadian banks: will they have to raise capital and will dividends have to be reduced as a result of earnings dilution? Our answer to the first question is "yes"--the likelihood of added capital is increasing," Goldberg said in a note to clients.

".....Our answer to the second question remains that the likelihood of dividend reductions continues to be remote, even for CIBC, which in our view, needs an injection of capital the most (even after its financing/insurance arrangement with Cerberus announced earlier this week)."