Canadian banks less likely to be supported by Ottawa says Fitch

Canadian banks less likely to be supported by Ottawa says Fitch

Canadian banks less likely to be supported by Ottawa says Fitch Fitch Ratings has downgraded its support ratings for many of Canada’s banks and mortgage lenders from 2 to 1. That means that the agency believes that the banks are less likely to be supported by Ottawa or institutions if action was needed to make the bank viable. The rating scale is from 1 (high level of support expected) to 5 (support cannot be relied on). Bank of Montreal, Scotiabank, CIBC, CCD, NBC, Royal Bank of Canada and TD do not currently incorporate any government support and are therefore ranked on their standalone strengths only Fitch says. The downgrade reflects Fitch’s view that, although there is capacity for support from state or institutions there is not the propensity. 
 
6 Comments
  • Darr Robbins 2015-05-20 8:47:17 AM
    History has shown us that when the shtf its Banks first, then People second. Banks in Cyprus were bailed-in through confiscation of depositors savings. This is now known as being “Cyprusized”. It was a test case by the IMF to see if it would work without an insurrection. It did.

    Thereafter, the G20 leaders approved proposals under the guise of Financial Stability to implement new Cyprus-style Bail-ins rules for Depositors and Pensioners. The new rules prioritized the payment of banks’ derivatives obligations to each other, ahead of everyone else.

    Once we deposit cash into our savings account, it is no longer our money. It is a loan to the bank. Most importantly, we become the lowest creditor in the food chain. In theory, deposits under $100,000 are protected by the Canadian Insurance Deposit Corporation. However, deposit insurance funds in both the US and Europe are woefully underfunded, particularly when derivative claims are factored in.

    Consequently, savings above this amount should be invested outside the banking system (such as Real Estate) as a precautionary measure. Due diligence would be advisable. Here's a Globe & Mail article (one of many) on the topic relating to Canada.

    http://www.theglobeandmail.com/report-on-business/ottawa-clears-up-confusion-over-bank-bail-in/article10697667/
    Post a reply
  • FYI 2015-05-20 9:01:35 AM
    I think the scale mentioned in the article is described backwards. (5 is a high level of support). In any case, back in march 2014 the Canadian federal government passed a law naming the banks that were too big to fail.
    Post a reply
  • Darr Robbins 2015-05-20 10:03:08 AM
    IMHO, Canadian Banks are not too big to fail, they're Too Big To Save.
    Industry concentration measured on a Herfindahl index in Canada is off-the-scale.
    Prudence would advise to go back to the Glass-Steagall Act.

    About the Herfindahl index :
    https://en.wikipedia.org/wiki/Herfindahl_index

    About the Glass-Steagall Act:
    http://www.investopedia.com/terms/g/glass_steagall_act.asp
    Post a reply