Canada's Big Banks Systemically Important

Canada Says Six Largest Banks ‘Systemically Important’

Canada’s six biggest banks are systemically important and need to set aside more capital to safeguard against failure, the country’s banking regulator said.
The lenders include Royal Bank of Canada, Bank of Montreal (BMO), Toronto-Dominion Bank (TD), Canadian Imperial Bank of Commerce, Bank of Nova Scotia and National Bank of Canada, the Office of the Superintendent of Financial Institutions said today in a statement. The six banks will be subject to a surcharge equal to 1 percent of risk-weighted capital by Jan. 1, 2016, the regulator said.
“The measures we are announcing today are designed to limit the likelihood that a major bank would encounter distress or failure that could negatively impact the Canadian economy or taxpayers,” said Julie Dickson, Superintendent of Financial Institutions.
The surcharge adds to a requirement of the Basel Committee on Banking Supervision that lenders set aside at least 7 percent core Tier 1 capital of risk-weighted assets. The increase was largely expected by bankers including Royal Bank Chief Executive Officer Gordon Nixon.

My view:

Historically, Canada's banking system has not been a particularly large player on the global stage.

The Bank of Nova Scotia has been involved with a number of project outside the country over the past 20 years, but overall, the balance of Canadian banks have invested the majority of their funds within Canada.

Due to the country's stability and steady growth for many years, the banking system is more robust than many of the banks global competitors.

So the apparent conservative approach to lending appears to be beneficial on the surface.

What is troubling, is this latest article calling the banks systemically important.

Since the beginning of the financial crisis in 2008, many of the global banks (American and European primarily) had massive assets bases and market capitalization compared to their Canadian counterparts.

2007 Global ranking by Shareholder equity ($m)
Rank    Entity                                    Score 
1     Bank Of America Corporation 135,271 ($m)
2     Citigroup Inc                               119,783 ($m)
3    JP Morgan Chase & Co.   115,790 ($m)  
4    HSBC                                            114,928 ($m)  
5    Mitsubishi UFJ Financial Group  81,940 ($m)   
6    Royal Bank Of Scotland Group   78,730 ($m)   
7    ING Groep NV                                78,088 ($m)   
8    Crédit Agricole                               77,462 ($m)  
9    Wachovia Corporation                 69,716 ($m) 
10  BNP Paribas                                 67,378 ($m) 
11  Banco Santander SA                   62,072 ($m) 
12  Industrial & Commercial Bank Of China - ICBC    58,975 ($m) 
13  Barclays Plc                                  53,050 ($m) 
14  Unicredito Italiano Spa               50,726 ($m) 
15  Wells Fargo & Company   45,814 ($m) 
16  Deutsche Bank AG                      44,142 ($m) 
17  Bank Of China Limited               44,137 ($m) 
18  China Construction Bank Corporation    42,294 ($m) 
19  Mizuho Financial Group              40,724 ($m) 
20  UBS AG                                          40,703 ($m) 

You will note that not one Canadian bank is in the top 20 banks in 2007.

For 2012/2013 the rankings are as follows:

RankBankCountryMarket cap, US$b, 25/01/2013
1Industrial & Commercial bank of China (ICBC)China237.97B
2HSBC HoldingsUK207.34B
3China Construction BankChina188.12B
4Wells Fargo & CoUS185.06B
5JP Morgan Chase & Co.US179.40B
6Agricultural Bank of ChinaChina147.27B
7Bank of ChinaChina132.85B
9Bank of AmericaUS125.24B
10Commonwealth Bank of AustraliaAustralia105.77B
11Banco SantanderSpain91.83B
12Royal Bank of CanadaCanada89.18B
13Westpac Banking CorporationAustralia88.84B
14Itau UnibancoBrazil79.62B
15BNP ParibasFrance77.15B
16Toronto-Dominion BankCanada76.08B
17Mitsubishi UFJ Financial Group (MUFG)Japan75.10B
18Australia and New Zealand Banking (ANZ)Australia74.03B
19Sberbank of RussiaRussia73.40B
20Banco BradescoBrazil71.85B
21Bank of Nova Scotia (Scotiabank)Canada68.85B
22Goldman Sachs GroupUS67.89B
23National Australia BankAustralia65.37B
24UBS AGSwitzerland65.48B
25Royal Bank of Scotland GroupUK65.23B
26Standard CharteredUK63.11B
27US BancorpUS61.99B
28Bank of CommunicationsChina60.90B
29Lloyds Banking GroupUK59.86B
32Sumitomo Mitsui FinancialJapan49.83B
33China Merchants BankChina46.77B
34Deutsche Bank AGGermany45.83B
35Mizuho Financial GroupJapan45.62B
36Morgan StanleyUS44.81B
37Bank of MontrealCanada41.49B

Now you will note that 3 Canadian banks are in the top 21 world banks since the financial crisis.

As we observe, only 4 Canadian banks are in the top 37.  The smallest "systemically important" Canadian bank (National Bank Of Canada) is way down the list (below 55th place - in fact about 120th place based on asset value) with market capitalization of only $11 Billion.

So this begs a question.

How in the world can such a small bank with only $11 Billion in market capitalization and about $159 Billion in assets be systemically important?

Are the derivatives held by all the banks so intertwined and inseparable that this small bank with its counterparty risk could conceivably bring down the entire financial system?

It certainly makes one stop and ponder the safety of cash deposits in Canadian banks in the wake of the events in Cyprus.


  1. Excellent post PW.

    Systemically Important in the fact that a One World Currency WILL be the play of the day and all banks GLOBALLY will be pooled together.

    All of the recent and current events are not an accident all this is on purpose, a Test if you will.

    First we start with the smaller banks, then as people get use to reading about these smaller pockets of panic it will become the norm.

    Then some mild calm, then panic, and eventually TPTB will move on, grow and metastasize to the larger banks and eventually even Greater panic.

    At that time the average folk will start to get angry as now it is affecting them! and many will call for something to be done. ( in typical sheep fashion )

    And of course in Typical Banker/Politician fashion to please the voting Base, the " We must do something " gang will implement Capital controls and eventually a new Currency backed by Gold. Everything else is just noise, and pockets of " Hey look over here not there " as the central Banks and the top 1% load up on precious Assets in Stealth mode.

    The Coup will have been complete! with not so much as a whisper from the sheep, why? cause they begged for " We must do something " and well the bankers and politicians did what you begged for.

    Nice game we're playing isn't it, its even nicer when one can see the other guy cards wink wink.

    Of course this will take a little time 3 maybe 5 years, or less pending the rate at which the switch pullers want to play their little games. Its always about timing, until then keep buying physical assets and be your own Central Bank.

    Be well

  2. Yes Bill, many of the things you mention will come to pass.
    I am beginning to wonder about the timing though, perhaps is will occur in less than 3 years?


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