The Bankwatch

Tracking the consumer evolution of financial services

Posts Tagged ‘david olive

The Canadian bank model secret? | risk aversion

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.

Written by Colin Henderson

May 4, 2009 at 16:00

A more pragmatic view of the near future for scenario planning

Right after I posted this piece, thinking that finally people were starting to look to the future with a more pragmatic eye,  I came across this from David Olive in The Star.  I am by nature an optimist, however rationalisations such as this piece cannot alter some obvious facts.

David Olive: Will the economy get worse? | The Star

No. The current market downturn is still small by historical standards and the seeds of recovery are already planted. By talking the crisis up, we’re only prolonging it. Here’s some ammunition for the optimists among us.

First we can begin with this graph of the unemployment rate of growth compared to previous recessions.
Both the rate of fall off in jobs and the extent of fall off are unprecedented.  incidentally no-one is expecting a turnaround in March.

Secondly, the value of assets in the world since a peak in Oct 2007 has dropped between 25% – 65% depending on mix of real estate and equities.  Yet consumer debt levels remain at historic highs.

No-one disputes that there will be a turnaround in the economy sometime, and whether it is 2009, 2010, or 2011 is not something I am qualified to judge.  However in my area of interest, or in industry in general, it is clear that the ‘recovery’ will not bring back ‘business as usual’.  The unsaid truth about recovery remains that it will not take us back to where we were before.

Relevance to Bankwatch:
Surely a better approach would be to plan for  a different future – a set of new assumptions to build into strategic plans that are not based on a return to ‘normal’   – for example, over the next 7 years what if we see:

  1. reduced car and home ownership by 30%
  2. increase in rent as a way of life/ reduced home ownership
  3. debt reduction as a way of life for many segments
  4. retirees with portfolios valued at 25 % of what they had expected

These are new reality scenarios that banks must consider, and more likely to generate a sense of positiveness by being grounded in a sense of the possible.

Written by Colin Henderson

March 9, 2009 at 22:54

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