MONTREAL - The federal government and the country's banks have agreed to form a group to work on ensuring adequate availability of credit and financing in Canada, Finance Minister Jim Flaherty said Tuesday.

"We all have responsibilities to ensure that the financial system functions properly in support of the Canadian economy," he said after a pre-budget meeting with various groups in Montreal. "I encourage the heads of the banks, the CEOs, to work with the government."

Flaherty, Bank of Canada governor Mark Carney, regulators and senior bankers met privately Monday as cries grew for the government to widen access to credit for consumers.

The finance minister reiterated his confidence on Tuesday in Canada's banks, saying, "We have one of the strongest banking systems in the world."

Flaherty said the government is looking at resuscitating the commercial paper market, which has been cited as a way to boost lending to small-and medium-sized businesses.

More than $32 billion in so-called Asset Backed Commercial Paper investments made by ordinary Canadians and companies have been frozen for nearly 18 months in a fallout from the sub-prime mortgage mess in the United States.

Various parties, including the banks, investors, brokers, companies and governments have been trying to finalize a restructuring agreement that will allow investors to get back some of their money.

"We have had discussions about ways in which we could accomplish the goal of making sure the commercial paper market works," he said. "Those discussions are ongoing. There are a number of policy options there."

But Flaherty, who was speaking to reporters before a meeting with the Canadian Taxpayers Federation and other groups, said no particular decisions have been made on what to include in this month's federal budget.

The federation's Kevin Gaudet said the group urged Flaherty at the meeting to balance the budget and cut financial aid to troubled industries.

"We'd like to see the federal government do everything it can to balance the budget," Gaudet said in an interview with Businss News Network, a Toronto-based cable TV channel.

"We'd like to see the government, in order to help balance the budget, avoid the type of corporate welfare payments that it's been looking at doing . . . for organizations like the Detroit Two auto companies (GM and Chrysler), forestry and an alphabet soup of others."

Nancy Hughes Anthony, president of the Canadian Bankers Association, said Monday's meeting between the big banks and Flaherty was "productive" and the challenges facing Canada were discussed.

She said the banks assured the minister they would continue lending to creditworthy people.

But Tom Velk, an economist at Montreal's McGill University, pointed out the credit crunch problems in the United States began when regulatory pressure required banks to lend money to people who were unlikely to pay the loans back.

He added that banks are dealing with depositors' money.

"The idea that we should force those banks to lend what is our money, either as taxpayers or as stockholders or as depositors, to people that may not pay it back is very bad public policy although it buys votes in a superficial way in the short run."

Velk said more information is needed about the creditworthiness of loan applicants and the standards used by banks to grant loans.

"One of the reasons our banks have survived so far (in) this financial crisis . . . is that they have in the past as well been reluctant to make loans to people who don't pay them back," he said.

"The government needs to be careful about what kinds of pressure it brings to bear on our bankers in the name of public popularity. The temptation is to throw money at losers at a time like this, which is exactly the screwy thing to do You want to give money to winners."

Flaherty indicated that personal tax cuts and infrastructure investments are being considered but no decisions had been made yet.

He also reiterated that a deadline will be set for the government to resolve any deficit it incurs in dealing with the financial crisis.