The Bankwatch

Tracking the consumer evolution of financial services

Canadian Bank equity is third worst globally

For all the talk of Canadian economic miracles, this graph is sobering and suggests a degree of risk that remains relative to other economies following a rapid increase in debt during the 80’s.  Note that higher is worse. 

The measure reflects assets to equity and high means less equity relative to the balance sheet.  According to this McKinsey study Canadian banks are third worst only behind Switzerland and Japan.

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The full report is at the McKinsey site. 

Report Debt and deleveraging: The global credit bubble and its economic consequences - January 2010

The report is really about economic consequences of consumer de-leveraging and worth the read.  The Economist summarises it here.

Written by Colin Henderson

March 28, 2010 at 21:45

Posted in Uncategorized

2 Responses

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  1. Calling a bank risky on leverage ratio alone doesn’t tell us much. Asset quality is the other side of the story. A bank levered 20x on high quality assets may be less risky than a bank levered 10x on junk. So I would not worry much about being third worst globally…

    Jay

    Jay Banks

    April 8, 2010 at 04:55

    • I can buy that argument if the underlying asset risk is better, but is it? We are not comparing high quality to junk. We are comparing UK, US, Canada, Switzerland. Are they so different in terms of underlying consumer circumstance is the question i would ask.

      Colin Henderson

      April 8, 2010 at 23:42


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