Posts Tagged ‘Canadian Banks’
An interesting survey of business reaction to the crisis, and which countries are least impacted. Full ranking follows the map. This explains a lot in terms of peoples reactions.
Time will tell if this reaction remains constant, and what were the contributors to and rivers of this reaction.
Countries that are Least Affected by Recession | digital inspiration
The data is based on the results of a business confidence survey that was done on international business people of 24 nations to identify which countries they believe are surviving the crisis the best.
Researched by Nobuyo Henderson
The general theme that the ‘Canadian Bank model’ is superior has constantly intrigued me, having been personally involved there.
Size and Diversification: They are smaller and less diversified, so some risk mitigation appears there. This is probably the biggest reason.
Number: There are only five of them, of any consequence, so a couple of regulators can do a lot of supervision there.
Loan restriction: there is a restriction on loan participation relative to capital.
Purdy Crawford/ Pan Canadian Investments: The Canadian government did presciently freeze $35 billion in derivatives back in 2007.
But no … in aggregate there is no enormous winning theme, or singular secret in Canada. In typical Canadian form its the softly softly approach, and David Olive in todays Star sums it up nicely with this quote below.
They are just plain old fashioned ‘risk averse’ supplemented by being too small (asset size is whats important here, not market cap) to take part in large scale international risky investments.
Obama eyes Canada as bank model | The Star
As a result of their largely shunning the purchase of multimillion-dollar packages of U.S. junk mortgages, Canadian banks have earned international acclaim for their continued sound condition. But that had nothing to do with the Canadian banks’ size or diversity of functions, and everything to do with prudent risk decisions and scrupulous regulatory supervision.
Following the Presidents visit to Canada today, Canadian banks and the Canadian system continue to get attention.
“Canada has shown itself to be a pretty good manager of the financial system in ways that we haven’t always been here in the United States,” Mr Obama told a Canadian broadcaster.
The president spent Thursday in Ottawa meeting Stephen Harper, Canada’s prime minister, to discuss the economy, trade and the environment, in addition to any talk surrounding the strength of Canada’s banks.
In large part because of their conservative culture, one that depends heavily on a vast and stable retail branch network, and a clubby working relationship, Canada’s banks have remained the strongest in the G7 and, according to an October report by the World Economic Forum, the soundest in the world.
The always clear thinking Fareed wrote this piece on the Canadian Banking system and how it is the envy of the world. The facts outlined are indisputable and the distinctions between the US and Canadian systems that favour care and moderation in Canada are all true.
However there is one other event he does not mention, that has quietly gone on for the last 14 months and in fact just completed in January this year with the announcement noted below on the E&Y site dated Jan 21st, 2009.
The story here goes back to December 2007, when I first noted it here. At that time the Canadian government strong armed the Banks in a prescient move to avert crisis in the Canadian component of the ABCP crisis. Recall that ABCP is lending by Canadian banks managed off balance sheet therefore not subject to capital requirements.
The arrangement in effect froze $25 Bn in Asset Backed Commercial Paper by transferring them into a series of trusts. [note this link is to a pdf on the E&Y site]. It explains ABCP, and explains the arrangement. In particular note this little gem on page 6 entitled “Alternative to the Plan”. They have turned off copying so I saved the screen shot here, and typed the first few words …
The Investors Committee believes that failure of this plan would likely lead to the forced liquidation of billions of dollars in assets that back ABCP …. the value of the affected ABCP in the context of a forced or voluntary sale is uncertain because there is currently no public market for the notes.
This financial trick was managed with the hesitant support of bank credit lines, and essentially (as I understand it) tooremoved the immediacy for settlement from the paper. However that paper remains contingent off balance sheet debt of the Canadian Banks.
The reason I raise this now, is that the Fareed article suggests that Canadian Banks are perfect, but the Pan-Canadian Investors Committee manouvre hides part of that truth that ought to be factored into the picture for completeness.
Here are the equity bases of the Canadian Banks from Google Finance – how significant is the $32 Bn – you can judge for yourself. In particular note that pre this arrangement, TD and I think one other were not engaged in ABCP as much, so the percentage would be much higher (worse) against those ABCP participating banks.
Royal $ 31Bn
BMO $ 19 Bn
Scotia $ 22 Bn
TD $ 32 Bn
CIBC $ 14 Bn
$ 32 Bn as a percentage of $118 Bn = 27%
Most recent update on the E&Y site relative to the euphemistically named Pan-Canadian Investors Committee.
Canadian Commercial Paper : Ernst & Young
For Immediate Release
ABCP Restructuring Completed
Plan to Be Implemented on January 21, 2009
Toronto, January 16, 2009 – The Pan-Canadian Investors Committee for Third-Party Structured Asset-
Backed Commercial Paper is pleased to report that all of the principal legal documentation needed to
implement the restructuring plan affecting $32 billion of third-party ABCP has been finalized and is being
signed today by all of the necessary parties.
Final reconciliations and verifications are now being conducted and the Court-appointed Monitor is
expected to file the certificate required to implement the Plan and complete the closing on January 21,
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