Canada has the world's soundest banking system

[james t kirk]

CANBERRA (Reuters) - Canada has the world's soundest banking system, closely followed by Sweden, Luxembourg and Australia, a survey by the World Economic Forum has found as financial crisis and bank failures shake world markets.

But Britain, which once ranked in the top five, has slipped to 44th place behind El Salvador and Peru, after a 50 billion pound pledge this week by the government to bolster bank balance sheets.

The United States, where some of Wall Street's biggest financial names have collapsed in recent weeks, rated only 40, just behind Germany at 39, and smaller states such as Barbados, Estonia and even Namibia, in southern Africa.

The United States was on Thursday considering buying a slice of debt-laden banks to inject trust back into lending between financial institutions now too wary of one another to lend.

The World Economic Forum's Global Competitiveness Report based its findings on opinions of executives, and handed banks a score between 1.0 (insolvent and possibly requiring a government bailout) and 7.0 (healthy, with sound balance sheets).

Canadian banks received 6.8, just ahead of Sweden (6.7), Luxembourg (6.7), Australia (6.7) and Denmark (6.7).

UK banks collectively scored 6.0, narrowly behind the United States, Germany and Botswana, all with 6.1. France, in 19th place, scored 6.5 for soundness, while Switzerland's banking system scored the same in 16th place, as did Singapore (13th).

The ranking index was released as central banks in Europe, the United States, China, Canada, Sweden and Switzerland slashed interest rates in a bid to end to panic selling on markets and restore trust in the shaken banking system


http://uk.reuters.com/article/newsOne/idUKTRE4981XQ20081009

 

[james t kirk]

With all the doom and gloom (very real) happening around us, I found this to be very interesting, and re-assuring as well.

I guess when it comes to the question of which is better - a regulated banking system (Canadian) or a deregulated system (American) we have an answer.

Though if the US fails, none of it will really matter anyway as chaos will occur.

 

[mprex]

I guess when it comes to the question of which is better - a regulated banking system (Canadian) or a deregulated system (American) we have an answer

As a disclosure, I work for one of the "Big Five" Canadian banks.

While there are many reasons why Canadian banks are in a decent position right now, deregulation isn't a factor.

The study cited above is a good example. Germany has a very highly regulated financial system yet their banking infrastructure is ranked 39th in the study, just above the US at 40th.

Also, banking is just one factor in how an economy performs. If you read the cited study (which goes beyond banking), overall they still ranked the US as #1 despite the current financial environment. Canada comes in at a respectable #10.

 

[Pink Panther]

Yeah, where is the actual report? I'm sick of semi educated "journalists" and halfwitted news agencies with their half-truths scaring the working man. Not to mention the working girl.

I hate to be topical but that $20B+ Canada spent on "keeping our commitments(sic)" - we got our ass handed to us. I'm sure it will make the "news" soon enough.

 

[mprex]

Complete report:

http://www.weforum.org/en/initiatives/gcp/Global Competitiveness Report/index.htm

 

[james t kirk]

As a disclosure, I work for one of the "Big Five" Canadian banks.

While there are many reasons why Canadian banks are in a decent position right now, deregulation isn't a factor.

The study cited above is a good example. Germany has a very highly regulated financial system yet their banking infrastructure is ranked 39th in the study, just above the US at 40th.

Also, banking is just one factor in how an economy performs. If you read the cited study (which goes beyond banking), overall they still ranked the US as #1 despite the current financial environment. Canada comes in at a respectable #10.

Could you then elabourate as to why Canadian Banks are as strong as they are.

I realize that banks are only one part of the equation, however, a nation's finance system is truly the foundation on which the nation's economy is built.

To that end, thank christ for whatever the Chartered Banks are doing.

 

[shakenbake]

Could you then elabourate as to why Canadian Banks are as strong as they are.

I realize that banks are only one part of the equation, however, a nation's finance system is truly the foundation on which the nation's economy is built.

To that end, thank christ for whatever the Chartered Banks are doing.

And also the federal governments in power, whatever their political stripes. They have had the foresight to do what was right with respect to banks and the federal finance system in a way to protect our best interests, in the end.

 

[mmouse]

Could you then elabourate as to why Canadian Banks are as strong as they are.

I believe one reason is a lack of competition compared to bigger economies like the US. In retail banking at least, we don't see much innovation or cut-throat competition. Banks can get away with hefty service fees and ridiculous "posted rates" that are basically a rip off for whoever is stupid enough not to negotiate. Profits have been very healthy for Canadian banks in the past few years.

In the US, however, banks were much more aggressive and thus reckless.

 

[Master Muse]

Aggressive = reckless??

I fail to see and you fail to state where the nexus exists betwen aggressive and reckless. It's not necessarily true; one does not follow the other. The reason for the problems is not commercial aggressiveness.

 

[mprex]

Could you then elabourate as to why Canadian Banks are as strong as they are.

There are many reasons, but one key difference is -- due to historical reasons -- banking in Canada is primarily concentrated among just a few institutions (the Big Five), while in the US there are literally thousands of banks of all sizes and strengths.

So today we have some really strong US banks (like Wells Fargo, Bank of America, JPMorgan Chase) but also some really weak ones (like Washington Mutual and Wachovia, which Wells Fargo just bought.)

In Canada, most of the weaker banks (and also brokerages, etc.) were already gobbled up by the Big Five a long time ago.

The irony is, the large number of banks in the US was because the US had very tough banking regulations, which prohibited interstate branch banking (the so called McFadden Act). This act meant smaller and weaker state-chartered banks in the US could not consolidate with other banks in other states.

Canada had less regulations in this regard, and allowed banks to consolidate. Although Canadian banks are smaller on an absolute size, as a matter of proportion to the population the Big Five banks are twice as large as the largest US banks. As a result of these consolidations, Canadian banks are now better equipped to handle this financial storm, though not without some (possibly major) problems.

In fact, the only thing that's preventing further consolidation in the Canadian market is the will of whoever is sitting in the government. The next time we have a majority government (either Liberal or Conservative), I can guarantee you that the Big Five will quickly become the Big Four.

Of course we have an election soon, so the present Canadian government would like to take credit for what is mostly a historical phenomena. In reality, the "capital reserve" and other requirements banks must meet today are largely the same whether in the US, or in Canada, or the rest of the industrialized world. That's because there is an international agreement (called Basel II) which sets minimum standards globally.

Also remember while this crisis is hitting banks, it originated with the real estate industry. The Canadian real estate landscape is very different from the US, so Canadian financial institutions were less affected by the sub-prime meltdown. Some of them, though, (notably CIBC and 2nd-tier banks like NBC) have suffered huge hits along the way.

 

[RogerRabbit]

Bank of Canada, will have injected a whopping $45 billion i

If our banking system is is so sound, compared to others, why did the Feds, buy $25 B in mortgage debt, what is the real reason, I read the spin below:

http://www.thestar.com/Business/article/515349

OTTAWA–The federal government is buying up $25 billion in residential mortgages to give the chartered banks additional cash to issue loans, Finance Minister Jim Flaherty announced Friday.
"This is going to make loans and mortgages more available and more affordable for ordinary Canadians and businesses," said the finance minister.
The extraordinary measure means Ottawa, through the federal government and the Bank of Canada, will have injected a whopping $45 billion in additional cash into the financial system in an effort to counteract the tight credit squeeze that has paralysed markets throughout the world.
Flaherty insisted that Canada is not facing the severity of problems seen in many industrialized countries, but he is acting before the same problems develop in Canada's money markets.
"This is a serious, severe, protracted freezing of credit markets globally," he said.
"Unlike some other countries we are being proactive. We are taking this step now to avoid a situation where there would be a lack of availability of mortgage loans, a lack of availability of business loans."






Sounds like the Feds are giving them the room to buy US banks. Any other theories and where is there money to be made for the little guy in all of this?


Where is the relief/ support for the small business owners?

 

[Dick Starbuck]

So could someone tell me logically (and in layman's terms), why our dollar is taking a dump? In my opinion, with all the financial turmoil, Canada is in one of the stronger positions to ride through the crisis. Shouldn't our dollar be once again surpassing the U.S.? Aren't we in better shape than them? Why is our currency (and seemingly no-one elses) so intertwined with commodities?

Thanks.

 

[mrkman]

Farking Canadian Bank(s)......
Had a $15,000 GIC mature while I was on vacation and since they could not reach me, they issued a bank draft and mailed it, even though I left instructions to deposit it into an account. Vacation over, I make my way over to the bank where they tell me it's been sent by mail. But 2 weeks have already gone by from the date they said the draft was sent, so I told them to cancel the draft and issue me a new one. No can do, they said, you have to wait 1 month. Fine....whatever...let me know in 2 weeks then. No can do, 1 month from TODAY. What the fark? Also, it's technically not in their system, so no reimbursement of any lost interest!! Fine, once the money is found, I told them to put it into another GIC, along with another $10,000 which I transfer to the account that same day. Long story short, it's been almost 2 months since they said they sent the bank draft, and now they can't find the $10,000 I had them transfer into the account (it's in the system somewhere....we'll find it soon, they said). Farking Idiots!!
I left the name of the bank out but let me tell you, they're Total Dicks.
Once the money is found, BUH BYE!, business elsewhere!
And don't get me started with my accounts at the bank that has the habit of leaving private account data whereever.

 

[mprex]

So would you see one of the big factors for the health in Canada is the different way that Canadian banks engaged with other players in the mortgage market?

Yes, to an extent. It's a nuanced issue.

TD Bank, for example, had almost none of these "sub-prime" derivatives. Full credit goes to its CEO, Edmund Clark, who dumped these securities three years ago. Harvard-educated Ph.D in Economics, he's deserved every penny TD has paid him so far.

On the other spectrum, CIBC had to write down about $8 billion, which is a pretty huge amount for a $20 billion company. Their CEO has a special skill on staying on the job, despite a record of poor performance.

Now, contrary to some postings, Canada had our own fast-growing share of sub-prime polluted, home-grown, 100% Canadian asset-backed commercial papers (ABCP). These toxic securities were issued not by banks but by independent companies (most notably Coventree) then sold by brokers like Canaccord. And Canadian institutions and individual investors bought these in droves, just like their US cousins did.

Lucky for us (!) the global sub-prime market started to fail last summer before our ABCP market got huge. At that time, the lowest grade non-bank Canadian ABCP market was about $30 billion worth ($120B in total) which completely collapsed last August. Canadian banks were forced to freeze and restructure these securities, or face total loss. So restructure they did, amids a ton of lawsuits since lots of people stood to lose lots of money. I believe the last legal hurdle for the ABCP restructuring was just resolved last month.

 

[mprex]

So could someone tell me logically (and in layman's terms), why our dollar is taking a dump?

In the short term at least:

1. Our dollar is tied to Canada's two main export industries: automobiles and oil, both of which are in steep decline.
2. Canada's government debt as a percentage of GDP is actually higher than the US (64.2% vs 60.8% as of the end of 2007.)
3. Right now investors want the safest investment possible -- the US Treasury Bill -- and they need US Dollars to buy those. Thus everyone is buying US Dollars to buy T-Bills, and dumping other currencies to do so.

In the longer term, who knows what's going to happen CAD$ vs USD$, too many variables.

 

[wollensak]

Our country's main source of revenue is exports of commodities. Our main customer, the USA, is expected to buy less of our commodities because of the financial meltdown. We no longer have a viable manufacturing industry, our domestic market is too small. We don't have the business infrastructure to support major R&D to create new products for world markets. We are a one-trick pony, totally dependent of raw material exports.

It's not hard to figure why our dollar is getting pounded.

Note that even though we are the only G8 country running a budget surplus it's having zero effect on the fortunes of our dollar.

When out dollar was trading at 62 cents US, the price of all commodities was in a 30-year low trough. The fiction is that paying off our debts lifted our dollar. The truth is that China and India needed vast amounts of commodities to fuel their manufacturing boom. The price of commodities was driven up and with it our dollar.

 

[james t kirk]

In the short term at least:

1. Our dollar is tied to Canada's two main export industries: automobiles and oil, both of which are in steep decline.
2. Canada's government debt as a percentage of GDP is actually higher than the US (64.2% vs 60.8% as of the end of 2007.)
3. Right now investors want the safest investment possible -- the US Treasury Bill -- and they need US Dollars to buy those. Thus everyone is buying US Dollars to buy T-Bills, and dumping other currencies to do so.

In the longer term, who knows what's going to happen CAD$ vs USD$, too many variables.

Not quite.

Our national debt as a percentage of GDP is NOT 64% contrary to what the CIA World fact book may like you to believe. (That data has not been updated in years, or perhaps the Americans want to feel better about their own 10 trillion dollar debt.)

It is a very respectable 32.9% as of 1 year ago

The accumulated deficit (the difference between total liabilities and financial and non-financial assets) stood at $467.3 billion as of March 31, 2007, a decline of $95.6 billion from its peak of $562.9 billion as of March 31, 1997. The accumulated deficit-to-GDP (gross domestic product) ratio was 32.3 percent, down sharply from its peak of 68.4 percent as of March 31, 1996, and is now at its lowest level since March 31, 1982.

Link to Government of Canada Website:

http://www.tpsgc-pwgsc.gc.ca/recgen/pdf/49-eng.pdf

The reason the dollar is tanking is because much of our economy is tied to commodity export and the betting is that the commodity markets will suffer during the recession.

 

[mprex]

Not quite.

Our national debt as a percentage of GDP is NOT 64% contrary to what the CIA World fact book may like you to believe. (That data has not been updated in years, or perhaps the Americans want to feel better about their own 10 trillion dollar debt.)

It is a very respectable 32.9% as of 1 year ago

NO!!! You're comparing NET DEBT vs. GROSS DEBT. That's Apples vs. Oranges. You can only compare debt numbers if they are prepared using the same methodology.

It follows that national numbers can't be compared against each other, because each government uses slightly different methodologies. What's nice about the CIA "public debt" numbers is they are comparable between countries (as much as possible.) The numbers roughly represent GROSS DEBT, and is the latest available (2007 estimates.)

The CIA numbers aren't so because "Americans want to feel better" about their debt. Get real!!

If the CIA numbers hurt your national pride, then look at OECD's latest numbers: OECD Factbook 2008.

For the same FY 2006-2007 as your link it shows:

GOVERNMENT GROSS FINANCIAL LIABILITIES % GDP

Canada 68.1%
United States 61.9%

The OECD numbers corroborate the CIA 2007 estimates.

 

[Keebler Elf]

Yeah, where is the actual report? I'm sick of semi educated "journalists" and halfwitted news agencies with their half-truths scaring the working man.

Very true. CNN is the worst. Every time I flip by the channel there's huge letters spelling out, "FINANCIAL CRISIS!!!", "DEPRESSION!!!", "ECONOMIC MELTDOWN!!!". All of which does nothing but fuel the fire of panicked American (and foreign) citizens.

CNN has become so sensational and sleazy, I now rank it up there with the celebrity TV "news" shows.

 

[21pro]

With all the doom and gloom (very real) happening around us, I found this to be very interesting, and re-assuring as well..

don't fucking kid yourself. Canada has good banks because they can charge rediculous fees and for the most part they are 'nationalized' to some extent. Yeah, great banks. Only problem that takes away your re-assurance: 86% of our exports are US bound!

a US in recession is going to focus on making their 'own' industries a priority, relying much less on imports and creating internal job creation. What's Canada to do? not like we can invade them and change their way of government.

So, yeah - we'll have good banks, just no money to put in them.