Canadian Banks Overshadow U.S. Banks

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In the financial capital of the planet – New York City we see a branch of Canada’s second largest bank, Toronto-Dominion Bank (TD).

Canadian banks have a presence in the United States; they have come through the global banking system’s meltdown. They are rising through the list of the world’s biggest banks, which are ranked by size. Not to mention, they are among the most profitable in the world at the moment.

With banks elsewhere struggling to stay afloat, we see Canada’s banks are positioned to take advantage of the mess that has been left behind.

We see international banking and investment giants such as Lehman Brothers, Bear Stearns and the Royal Bank of Scotland succumbed or bought out to prevent their collapse. While there has not been a single Canadian bank that has failed or required a bailout from the federal government.

In the United States alone, there are at least 60 banks which have failed this year, not forgetting the record breaking 11 banks in a single day in early July. We saw another 25 banks fail last year as well. The cost to the U.S. Federal Deposit Insurance Corp. is more than $30 billion for the last 18 months.

The U.S. government spent more than $200 billion bailing out more than 250 banks so far, this includes $45 billion to each of Bank of America and Citigroup.

As most might know, Canada’s banks did not come through the last two years without taking a hit. Share prices for the big six banks dropped between 16.4 and 46.4% in 2008; combined annual profits fell to $12 billion in 2008 from $19.5 billion in 2007. However, the Canadian Imperial Bank of Commerce (CIBC) was still able to record a profit in 2008.

Canadian banks were able to climb the global and North American bank ratings determined by the amount of their capital holdings.

The Royal Bank of Canada (RBC), Canada’s largest, climbed more than 10 spots to number 13 among global giants.

In North America we see four out of the big six among the top 10, with RBC fifth, TD eighth, Bank of Nova Scotia ninth and CIBC tenth.

TD Economics senior vice-president Don Drummond notes that this rise is mainly on how much other banks are falling, rather than serious growth of Canada’s banks.

On an interesting note, just a decade ago we saw banks going to the federal government asking to merge with each other because they could not compete globally unless they were bigger. RBC wanted to merge with the Bank of Montreal (BMO) and TD wanted to merge with CIBC.

Had banks merged in Canada, there might have been more risks taken which might have caused Canada’s banks toned bailouts or even go under notes Liberal Finance Critic John McCallum. 

For a matter of fact, Canada’s lack of risk taking is one of the main reasons for Canada’s banking success.

Currently Canada has two dozen domestic banks, but the big six; RBC, TD, BMO, Scotiabank, BMO, CIBC and the National Bank of Canada (NBC) account for more than 90% of the assets of all domestic banks.

They all have capital holdings to back up their loans and investments that far exceed the minimum requirements of either Canadian or international regulations.

As a Canadian I am proud to see Canada’s banks rising on a global scale, despite the conditions it is rising in. It shows that being patient and constant regulating will slowly help you rise to the top. Not to mention some of Canada’s banking requirement are stricter.

An example of this is how Canadian banks exceed the capital holding requirements of both national and international standards by significant amounts. OFSI requires domestic banks to have a tier one capital ratio of 7%.

Last fall, when the banking crisis hit, the average U.S. bank had a tier one capital ratio of 5% and in Europe it was 4%.

Drummond notes that if the banks, as TD has done, keep administration of U.S. holdings in Canada, further expansion will continue to boost the Canadian economy, and last but not least our national pride.

Big Banks of the World

 2008 top global banks by market capitalization (2007 ranking)

1.Industrial and Commercial Bank of China (1)
2.JP Morgan Chase and Company (6)
3.HSBC Holdings (2)
4.Wells Fargo & Co. (n/a)
5.Bank of China Limited (4)
13.Royal Bank of Canda (24)
22. The Toronto-Dominion Bank (37)
28. The Bank of Nova Scotia (38)
44. Canadian Imperial Bank of Commerce (63)

 -          PriceWaterHouse Coopers, Canadian Banks 2009

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