Canada Has World's "Soundest Financial System"

Banks all over the world have taken an absolute drubbing over the past couple of years.

The banking systems in a number of very large countries, including the United States and the United Kingdom, are relying on government capital infusions in order to avoid collapsing completely.

Canada, though, is not one of these countries.

In October of 2008, the World Economic Forum declared that Canada's financial system was the "soundest in the world".

President Barack Obama commented on the strength of the Canadian financial system during a recent visit to Ottawa.

In an era when many banking systems are filled with "zombie banks" and relying on government funds to function, Canada's system continues to be the picture of perfect health.

Just how healthy is the Canadian banking system? Here are a few tidbits of information for you:

1. TWO Canadian regional banks have failed since 1923.

2. The Canadian government set up a $218 billion dollar program to guarantee bank debt in an effort to allow Canadian banks to compete with "goverment-backed US banks". Not one dollar is this has been touched as of yet.

So how was the Canadian banking system managed to skate through this crisis, relatively unscathed?

A few reasons, including:

1. Very conservative lending criteria.

2. More stringent Tier 1 capital requirements set out by the Canadian government compared to other countries.

3. Canadian banks are heavily diversified.

4. Subprime homeowner loans account for just 5% of overall Canadian mortgages. This number is four times higher in the United States.

5. Canadian real estate market has held up better than other markets (namely, the United States).

The major Canadian banks have certainly taken a hit to their market caps during this global economic recession, but they have certainly held up better than their counterparts in the United States and the UK.

Over the past two years, Toronto Dominion bank has lost about half of its value and currently has a market cap of $24.49 billion dollars.

The Royal Bank of Canada currently trades at around $25 per share, down roughly 50% from two years ago.

The Bank of Nova Scotia and the Bank of Montreal have suffered similar drops.

Having said that - these are extraordinary performances compared to the likes of Citigroup, Bank of America, etc.

The fact that the Canadian government has not yet had to intervene on the behalf of the Canadian banking system is unbelievable, especially in this current environment.

Filed under: General Knowledge