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 ($m)
You will note that not one Canadian bank is in the top 20 banks in 2007.
For 2012/2013 the rankings are as follows:
Rank | Bank | Country | Market cap, US$b, 25/01/2013 |
1 | Industrial & Commercial bank of China (ICBC) | China | 237.97B |
2 | HSBC Holdings | UK | 207.34B |
3 | China Construction Bank | China | 188.12B |
4 | Wells Fargo & Co | US | 185.06B |
5 | JP Morgan Chase & Co. | US | 179.40B |
6 | Agricultural Bank of China | China | 147.27B |
7 | Bank of China | China | 132.85B |
8 | Citigroup | US | 129.97B |
9 | Bank of America | US | 125.24B |
10 | Commonwealth Bank of Australia | Australia | 105.77B |
11 | Banco Santander | Spain | 91.83B |
12 | Royal Bank of Canada | Canada | 89.18B |
13 | Westpac Banking Corporation | Australia | 88.84B |
14 | Itau Unibanco | Brazil | 79.62B |
15 | BNP Paribas | France | 77.15B |
16 | Toronto-Dominion Bank | Canada | 76.08B |
17 | Mitsubishi UFJ Financial Group (MUFG) | Japan | 75.10B |
18 | Australia and New Zealand Banking (ANZ) | Australia | 74.03B |
19 | Sberbank of Russia | Russia | 73.40B |
20 | Banco Bradesco | Brazil | 71.85B |
21 | Bank of Nova Scotia (Scotiabank) | Canada | 68.85B |
22 | Goldman Sachs Group | US | 67.89B |
23 | National Australia Bank | Australia | 65.37B |
24 | UBS AG | Switzerland | 65.48B |
25 | Royal Bank of Scotland Group | UK | 65.23B |
26 | Standard Chartered | UK | 63.11B |
27 | US Bancorp | US | 61.99B |
28 | Bank of Communications | China | 60.90B |
29 | Lloyds Banking Group | UK | 59.86B |
30 | Barclays | UK | 58.45B |
31 | BBVA | Spain | 56.73B |
32 | Sumitomo Mitsui Financial | Japan | 49.83B |
33 | China Merchants Bank | China | 46.77B |
34 | Deutsche Bank AG | Germany | 45.83B |
35 | Mizuho Financial Group | Japan | 45.62B |
36 | Morgan Stanley | US | 44.81B |
37 | Bank of Montreal | Canada | 41.49B |
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.
Excellent post PW.
ReplyDeleteSystemically 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
Yes Bill, many of the things you mention will come to pass.
ReplyDeleteI am beginning to wonder about the timing though, perhaps is will occur in less than 3 years?