Canada’s banks provide a model for the U.S. and the world according to none other than Time magazine.
Why has Canada withstood the subprime tornado better than other countries, and should the Canadian banking system be a model for G-7 and G-20 leaders when they gather in Washington on Nov. 15? Consider that the Geneva-based World Economic Forum … earlier this month ranked Canada’s banking system as the soundest in the world. The U.S. came in at No. 40, and Germany and Britain ranked 39 and 44, respectively.
The average capital reserves for Canada’s Big Six banks — defined as Tier 1 capital (common shares, retained earnings and non-cumulative preferred shares) to risk-adjusted assets — is 9.8%, several percentage points above the 7% required by Canada’s federal bank regulator. That’s a little better than major U.S. commercial banks like Bank of America, but significantly higher than an average capital ratio of about 4% for U.S. investment banks and 3.3% for European commercial banks.
Another factor that helped make Canada the new gold standard in banking was Ottawa’s decision in the late 1980s to allow commercials banks to acquire investment dealers on Toronto’s Bay Street, the country’s financial hub. As a result, these institutions are subject to the same strict rules as commercial banks, while U.S. investment dealers are subject to only light supervision from the Securities and Exchange Commission. Morgan Stanley and Goldman Sachs, of course, will now be under the U.S. Federal Reserve’s supervision since they have been chartered as bank-holding companies …
There is, of course, a flip side to Canada’s regulatory system. When the global economy was flying high, Canadian banks complained about not being allowed to merge to become more significant international players. “In hindsight, that decision may have saved Canada from having a Royal Bank of Scotland on its hands,” says Lawrence Booth, a finance specialist at the University of Toronto’s Rotman School of Management, referring to the overly ambitious bank’s bailout earlier this month by the British government …
Perhaps when world leaders sit down in Washington to forge a 21st-century New Deal for the global financial system, it may have more than a smattering of Canadian banking know-how.
I feel pretty darn comfortable with them personally. But it remains to be seen how Canada’s economy and currency will fare during the recession. Your thoughts?
December 1st, 2008 at 12:33 am
In comparison to my dealings with Wells Fargo and BofA in the US, my Canadian banks have generally treated me with contempt, charged me exorbitant fees and provided me fewer financial services in exchange for allowing them to hold my money ($1.50 to look at a cheque online!!) This is a natural result of there not being any meaningful between the Big 5.
However, I have never once thought that my money was unsafe, and that is what matters in the end.
As for our currency, while this is an unpopular position, I believe it is in Canada’s interest to have a strong dollar, as much as this puts pressure on currency-sensitive industries. A stronger currency, plus higher salaries in the US have been a draw to the brighest and most talented Canadians, ones that should be starting up companies like RIM or ATI and not going to work for Apple or Microsoft as H1-B serfs.
In my case, I must admit, the thought of 1 USD = 1 CAD played a role in my decision to move back home to Toronto this summer from the US. While I am happy to wait things out a bit with the recent turnaround, if our currency stays so devalued, those pressures to leave will become more difficult to resist. But with oil prices long-term having no where to go but up, I hope that that will not be the case.
March 3rd, 2009 at 1:53 pm
This is what I think about the Royal bank of scotland. RBS boss Fred goodwin should be stripped of the pension he doesn’t deserve. If they pay him a profit related percentage he will get minus figures. Taking away his pension is the best option.