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Old 05-25-2009, 07:37 PM  
banyon banyon is offline
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Why is Canada's banking system intact while most others are in chaos?

Canada's Financial System: How Is It Still Stable in This Crisis?
by: David Hunkar May 25, 2009 | about stocks: BMO / BNS / CM / RY / TD
David Hunkar

http://seekingalpha.com/article/1394...le_lb_articles

The IMF Country Report for Canada published Friday offers some unique perspectives on the reasons for the stability of Canada’s financial system since the credit crunch began. There have no been no failures of financial institutions, no large scale bailout of banks and the financial system did not undergo severe systemic pressures like it did in the U.S. and UK. In this post, let's review some of the key points from this report.



1. Sound Supervision and Regulation: Regulators follow some of the best practices with respect to supervision of institutions including the new Basel principles for banking supervision. As a result writedowns by Canadian banks have been much smaller when compared to major-peer countries as shown in the chart below.


2. Strict Capital Requirements: Canadian banks’ Tier 1 Capital Ratio exceeds 7% which is higher than the 4% that required by the Basel Accord.

As of February, 2009 the Tier Ratios of the six large banks are as follows:



3. Leverage ratio: This is limited to just 5% of total capital or up to 20% maximum. U.S. banks on the other hand are allowed up to 33% based on their strength and sophistication.

4. Conservative lending policies: Canadian banks like their customers exhibit low risk tolerance and have very conservative lending policies. Also their domestic retail market is profitable and stable unlike in the US.

5.Conservative Residential Mortgage Markets: In the US, 25% of all mortgages are non-prime and 60% of mortgages are securitized. In Canada these numbers are just 5% and 25% respectively. In addition most of the mortgages in Canada have Loan-To-Value [LTV] ratios of below 80%.

6. Periodic Regulatory Reviews: Since the financial sector is ever-changing with innovations and globalization, the federal authorities in Canada review the financial regulations every 5 years. It is not clear if a similar process exists in the U.S.

7. Cooperation among regulatory agencies: Officials of the various government agencies such as the Office of the Superintendent of Financial Institutions [OSFI], Finance
Canada, Bank of Canada [BoC], Canada Deposit Insurance Corporation [CDIC], and the Financial Consumer Agency of Canada meet regularly as part of the Financial Institutions Supervisory Committee [FISC] to discuss and exchange regulatory information. In the U.S., agencies such as the Office of Thrift Supervision [OTS], FDIC, Federal Reserve, etc. usually operate independently of one another. Inter-agency cooperation is non-existent for the most part.

8. Proactive response to financial strains: Federal authorities are proactive when it comes to dealing with financial strains to the system. The 2009 budget contains many provisions to support stability in the financial system.



As a result of the above reasons, all the top five Canadian banks have become strong and powerful among the banks in North America.

For example, the above table shows that Royal Bank of Canada (RY) had a market cap larger than Bank of America (BAC) on April 1, 2009. And all five banks were well ahead of Citibank (C). Citibank used to have a market above $200B only a few years ago. Now if not for the government bailout, the bank would have failed. Some experts like Mark Patterson have said that many large U.S. financial giants are technically insolvent.

Overall despite being very close to the U.S. in terms of financial and economic linkages, Canadian banks have so far shown remarkable resilience during this crisis.

Source: Canada: 2009 Article IV Consultation—Staff Report; Staff Statement; and Public Information Notice on the Executive Board Discussion, May 2009, IMF
Disclosure: Long all five Canadian Banks listed in the US markets


and it wasn't because they left it all open to the oracle of the market?
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Old 05-25-2009, 07:57 PM   #2
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There was no lack of regulation in the US since new regs replaced older ones. The regulators aka govt did not do it's job regulating. You can't hang your hat on the regulation canard when we have the system we have because some of them make sense for this system. Those wouldn't make sense in a free system without fractional reserve banking.

Oh and the Chinese Communist have a so-far sound financial system too. And Canada doesn't have an empire of bases to support which necessitates our govt borrowing excessively.
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Old 05-25-2009, 08:06 PM   #3
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Quote:
Originally Posted by BucEyedPea View Post
There was no lack of regulation in the US since new regs replaced older ones. The regulators aka govt did not do it's job regulating. You can't hang your hat on the regulation canard when we have the system we have because some of them make sense for this system. Those wouldn't make sense in a free system without fractional reserve banking.

Oh and the Chinese Communist have a so-far financial system too. And Canada doesn't have an empire of bases to support which necessitates our govt borrowing excessively.
Of course there was a lack of regulation. Did you not follow the Gramm-Leach-Bliley bill and its repeal of Glass-Stegall and the subsequent creation of the Mortgage backed securites and Credit Default swaps in the primary financial industry? Not to mention that while Bush was in office, antitrust and securities regulators were practically asleep at the switch.

You had people like Madoff and Stanford on the inside of Wall Street cozy with the regulators bilking people out of billions.

Also, our debt isn't to finance an "empire of bases". I would like to trim some excesses in military contracting as well, but that's a relatively small fraction of the overall debt in this discussion.

Lastly, I note that you didn't comment on the stability of the Canadian banking system and its relatively higher level of regulation, shouldn't, by all that you hold holy, that mean they should have superimploded into a Stalinist prison camp years ago?
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Old 05-25-2009, 10:41 PM   #4
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Because they are communists.
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Old 05-25-2009, 10:54 PM   #5
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from http://blogsandwikis.bentley.edu/the...lusion/?p=1150

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Why Have Canada's Banks Done Well?
...

But it doesn’t seem to be as simple as “Canadian banks are more tightly-regulated”.

1. We never had restrictions on interstate banking, so Canadian banks spread their assets and liabilities across Canada. (So it doesn’t matter if a local housing market goes bust).

2. We don’t have Glass-Steagal. The investment banks joined the retail banks some years ago.

3. We don’t have mortgage interest deductibility from taxes. So paying down your mortgage is a tax-free investment. So most people want to pay down their mortgages.

4. (Except in Alberta), mortgages are fully recourse. You can’t just walk away from a negative equity home and hand the keys to the bank; the bank will come after you for the difference.

I wouldn’t describe those differences as “Canada is more regulated”.

Not to mention the obvious fact that any Canadian investors seeking high risk just invested in Wall Street.
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Old 05-25-2009, 11:05 PM   #6
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I'll add to my previous post that not everything is about Socialism vs Free Markets, there are a lot of technical issues involved in these things that don't fall on that spectrum. Taking a pre-formed ideology and trying to force a new issue into it serves no good.
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Old 05-25-2009, 11:27 PM   #7
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Quote:
Originally Posted by banyon View Post
Of course there was a lack of regulation. Did you not follow the Gramm-Leach-Bliley bill and its repeal of Glass-Stegall and the subsequent creation of the Mortgage backed securites and Credit Default swaps in the primary financial industry? Not to mention that while Bush was in office, antitrust and securities regulators were practically asleep at the switch.

You had people like Madoff and Stanford on the inside of Wall Street cozy with the regulators bilking people out of billions.

Also, our debt isn't to finance an "empire of bases". I would like to trim some excesses in military contracting as well, but that's a relatively small fraction of the overall debt in this discussion.

Lastly, I note that you didn't comment on the stability of the Canadian banking system and its relatively higher level of regulation, shouldn't, by all that you hold holy, that mean they should have superimploded into a Stalinist prison camp years ago?
One small quibble. CDS and Mortgage Backed Securities have been around for a long time. There was quite a discussion at the time as to whether they should have been regulated by the CFTC or stay unregulated.

The repeal of Glass Steagall allowed banks to do things they had not been allowed to do since they got into trouble last time (Great Depression) and then the subsequent relaxation of leverage limits are what ran these securities into the ground.
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Old 05-26-2009, 01:17 AM   #8
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Did the Canadian government tell it's banks to lend to people that couldn't afford to pay back the loans?
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Old 05-26-2009, 04:52 AM   #9
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Old 05-26-2009, 06:35 AM   #10
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Old 05-26-2009, 06:41 AM   #11
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Canadian Banks were not forced into sub prime by regulation...ours were regulated, just told to do dumb stuff.
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Old 05-26-2009, 08:07 AM   #12
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Quote:
Originally Posted by SBK View Post
Did the Canadian government tell it's banks to lend to people that couldn't afford to pay back the loans?
Did ours?
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Old 05-26-2009, 09:01 AM   #13
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Quote:
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Did ours?
No, but the wingers like to keep throwing it out there like they did.
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Old 05-26-2009, 09:31 AM   #14
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Quote:
Originally Posted by Forward Dante View Post
from http://blogsandwikis.bentley.edu/the...lusion/?p=1150




Not to mention the obvious fact that any Canadian investors seeking high risk just invested in Wall Street.
1. I'm not sure why this matters since the banks at issue here are also large, national banks and the locality of mortgages requirement went away quite a while ago.

2. Probably unlike our investment banks, it sounds like the Canadian ones are heavvily regulated.

3. Fair enough.

4. Banks can seek deficiency juddgments here as well, I don't see that there's a difference here.

A solid counterpoint as always Mr. Forward Dante, but you haven't really shown anything to counter the fact that the Canadian banks are significantly more regulated and they're not having issues.
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Old 05-26-2009, 09:31 AM   #15
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Quote:
Originally Posted by HonestChieffan View Post
Canadian Banks were not forced into sub prime by regulation...ours were regulated, just told to do dumb stuff.
Proof?
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