A tale of one country and its banking system, yet two stories:
- Canada rated world’s soundest bank system.
Canada has the world’s soundest banking system, closely followed by Sweden, Luxembourg and Australia, a survey by the World Economic Forum has found as financial crisis and bank failures shake world markets.
But Britain, which once ranked in the top five, has slipped to 44th place behind El Salvador and Peru, after a 50 billion pound ($86.5 billion) pledge this week by the government to bolster bank balance sheets.
The United States, where some of Wall Street’s biggest financial names have collapsed in recent weeks, rated only 40, just behind Germany at 39, and smaller states such as Barbados, Estonia and even Namibia, in southern Africa.
In an indication of the uncertainty in the markets, Canada’s private banks declined to pass on to consumers the full half percentage point cut in interest rates announced by central banks around the world.
The banks cut interest a quarter of a point instead, the first time since the Asian financial crisis in 1997 that they haven’t followed what Canada’s central bank has done.
Hmm…I worked for Canada’s largest bank in the credit card unit when I was completing my degree in finance (I wanted to move to their investment banking unit… didn’t happen, so I ventured online).
Some thoughts:
- Unlike the US that deregulated banking, Canada’s deregulation was modest: banks could acquire investment banks and insurance firms (”the pillars”) but they could not merge. Bear in mind, Canada’s system is an oligopoly with a whopping five main banks. As such, each one is fairly robust even though some crisis have knocked out a lot of value out of each one at various times (example: due to Long Term Capital Management, CIBC closed a helluva lot of branches to offset losses).
- It will be interesting to see how Canada reacts to the American maelstrom. The saying is “when the US sneezes, Canada catches a cold”. Right now, however, I think the storm’s winds aren’t necessarily headed north. Time will tell.
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