“…we have not had to put any taxpayers’ money into our financial system in Canada, nor do I
anticipate that we’ll be obliged to do so.”
—Jim Flaherty, Minister of Finance
“Without wanting to appear arrogant or vain, which would be quite un-Canadian... while our
system is not perfect, it has worked during this difficult time, I don’t want the government to be in
the banking business in Canada.”
—Jim Flaherty, Minister of Finance
“It is true, we have the only banks in the western world that are not looking at bailouts or anything
like that...and we haven’t got any TARP money.”
—Stephen Harper, Prime Minister
With such propaganda statements, bordering on patriotism, uttered by various Canadian
politicians, it is no wonder that last summer Zero Hedge got into hot water with virtually every
Canadian media outlet (see here and here) for daring to suggest that Canada's banks are not quite
as stable and well capitalized as public rhetoric makes them seem. The narrative goes that
Canadian banks were so rock-solid, they needed no public bailouts. Today, in an extended report
by the Canadian Center for Policy Alternatives we get a slightly different perspective on what really
happened in the 2008-2010 period.
From the report:
The official story of the 2008 financial crisis goes like this: American and international banks got
caught placing bad bets on U.S. mortgages and had to be bailed out. But not in Canada. Through
the financial crisis, Canadian banks were touted by the federal government and the banks
themselves as being much more stable than other countries’ big banks. Canadian banks, we were
assured, needed no such bailout.
However, in contrast to the official story Canada’s banks received $114 billion in cash and loan
support between September 2008 and August 2010. They were double-dipping in not only two
but three separate support programs, one of them American. They continued receiving this
support for a protracted period while at the same time reaping considerable profits and providing
raises to their CEOs, who were already among Canada’s highest paid. In fact, several banks drew
government support whose value exceeded the bank’s actual value. Canadian banks were in hot
water during the crisis and the Canadian government has remained resolutely secretive about the
details.
It should be noted that the “Extraordinary Financing Framework” was prepared to spend up to
$200 billion to aid the banks and other industries. In other words, while the sums reported in this
report are enormous, there were even more funds to be disbursed if the banks needed them.
In other words, just like US, European and ROW banks, Canadian banks were just as mortal, just as
susceptible to bank runs, and just as fragile as everyone else in this globally interconnected
financial regime. And the reality is that just as we disclosed last August when we pointed out to
the abnormally low capitalization ratios of Canadian banks, which served as the initial domino for
a firestorm of media criticism and vitriolic displaced patriotism, should the same Big 5 Canadian
banks suffer impairments of more than just a few percent, their entire equity buffer would be
impaired. No accounting gimmicks would mitigate this: no RWA assessment, no mark to myth - if
the inbound cash flows on the left side of the balance sheet are impaired, the ability to fund
outflows on the right side will be crippled as well.
This was the basis of our caution. The response however confirmed that far more than simple
math, when it comes to Canadian banks there is almost an irrational patriotic component
involved, which forces many to ignore the simple math and to hope (probably the closest word to
describe the sentiment) that nothing wrong can happen to the local financial sector.
So in order to get some clarity, we have selected several excertps from the CCPA report, as well as
some fact-based charts and diagrams for everyone's elucidation:
It was the collapse of Lehman Brothers that started the massive support for Canadian banks from
both American and Canadian governments, as shown in Figure 1. Massive loans from the liquidity
programs of the U.S. Federal Reserve and the Bank of Canada provided the bulk of the initial
support for the big Canadian banks.
However, it was the third support from CMHC’s Insured Mortgage Purchase Program (IMPP) that
did the heaviest lifting. In contrast to the loans of the first two programs, CMHC was providing
direct cash infusions to Canada’s banks, although it took longer to ramp up. The program
provided its first cash to the banks in October 2008.
Within four months’ time, Canada’s big banks requested and received a whopping $50 billion in
cash in exchange for mortgage-backed securities. By March 2009, government supports to
Canada’s banks peaked at $114 billion. At this point, support for Canadian banks was equivalent
to 7% of Canada’s 2009 GDP. That support represents a subsidy worth about $3,400 for every
man, woman and child in Canada.
By late-2009, the U.S. Federal Reserve began to wind down its support for Canadian banks. The
Bank of Canada’s support for Canadian banks continued until the spring of 2010. Interestingly,
the global financial crisis subsided by the end of 2009, but CMHC cash injections to Canada’s big
banks didn’t wrap up until April 2010. The recession appeared to be behind us but Canada’s big
banks were still taking cash from this federal program in the fall of 2010.
By February 2010 and July 2010, all of the U.S. Federal Reserve and Bank of Canada loans had
been respectively repaid. While these funds were repaid in full, it is clear that the banks benefitted
enormously from public financing when private funds were unavailable. In addition, had the rapid
and enormous deployment of public funds not been available, most, if not all, Canadian banks
would have encountered serious difficulty.
http://www.zerohedge.com/news/quantifying-big-five-canadian-banks-114-billion-bailout
anticipate that we’ll be obliged to do so.”
—Jim Flaherty, Minister of Finance
“Without wanting to appear arrogant or vain, which would be quite un-Canadian... while our
system is not perfect, it has worked during this difficult time, I don’t want the government to be in
the banking business in Canada.”
—Jim Flaherty, Minister of Finance
“It is true, we have the only banks in the western world that are not looking at bailouts or anything
like that...and we haven’t got any TARP money.”
—Stephen Harper, Prime Minister
With such propaganda statements, bordering on patriotism, uttered by various Canadian
politicians, it is no wonder that last summer Zero Hedge got into hot water with virtually every
Canadian media outlet (see here and here) for daring to suggest that Canada's banks are not quite
as stable and well capitalized as public rhetoric makes them seem. The narrative goes that
Canadian banks were so rock-solid, they needed no public bailouts. Today, in an extended report
by the Canadian Center for Policy Alternatives we get a slightly different perspective on what really
happened in the 2008-2010 period.
From the report:
The official story of the 2008 financial crisis goes like this: American and international banks got
caught placing bad bets on U.S. mortgages and had to be bailed out. But not in Canada. Through
the financial crisis, Canadian banks were touted by the federal government and the banks
themselves as being much more stable than other countries’ big banks. Canadian banks, we were
assured, needed no such bailout.
However, in contrast to the official story Canada’s banks received $114 billion in cash and loan
support between September 2008 and August 2010. They were double-dipping in not only two
but three separate support programs, one of them American. They continued receiving this
support for a protracted period while at the same time reaping considerable profits and providing
raises to their CEOs, who were already among Canada’s highest paid. In fact, several banks drew
government support whose value exceeded the bank’s actual value. Canadian banks were in hot
water during the crisis and the Canadian government has remained resolutely secretive about the
details.
It should be noted that the “Extraordinary Financing Framework” was prepared to spend up to
$200 billion to aid the banks and other industries. In other words, while the sums reported in this
report are enormous, there were even more funds to be disbursed if the banks needed them.
In other words, just like US, European and ROW banks, Canadian banks were just as mortal, just as
susceptible to bank runs, and just as fragile as everyone else in this globally interconnected
financial regime. And the reality is that just as we disclosed last August when we pointed out to
the abnormally low capitalization ratios of Canadian banks, which served as the initial domino for
a firestorm of media criticism and vitriolic displaced patriotism, should the same Big 5 Canadian
banks suffer impairments of more than just a few percent, their entire equity buffer would be
impaired. No accounting gimmicks would mitigate this: no RWA assessment, no mark to myth - if
the inbound cash flows on the left side of the balance sheet are impaired, the ability to fund
outflows on the right side will be crippled as well.
This was the basis of our caution. The response however confirmed that far more than simple
math, when it comes to Canadian banks there is almost an irrational patriotic component
involved, which forces many to ignore the simple math and to hope (probably the closest word to
describe the sentiment) that nothing wrong can happen to the local financial sector.
So in order to get some clarity, we have selected several excertps from the CCPA report, as well as
some fact-based charts and diagrams for everyone's elucidation:
It was the collapse of Lehman Brothers that started the massive support for Canadian banks from
both American and Canadian governments, as shown in Figure 1. Massive loans from the liquidity
programs of the U.S. Federal Reserve and the Bank of Canada provided the bulk of the initial
support for the big Canadian banks.
However, it was the third support from CMHC’s Insured Mortgage Purchase Program (IMPP) that
did the heaviest lifting. In contrast to the loans of the first two programs, CMHC was providing
direct cash infusions to Canada’s banks, although it took longer to ramp up. The program
provided its first cash to the banks in October 2008.
Within four months’ time, Canada’s big banks requested and received a whopping $50 billion in
cash in exchange for mortgage-backed securities. By March 2009, government supports to
Canada’s banks peaked at $114 billion. At this point, support for Canadian banks was equivalent
to 7% of Canada’s 2009 GDP. That support represents a subsidy worth about $3,400 for every
man, woman and child in Canada.
By late-2009, the U.S. Federal Reserve began to wind down its support for Canadian banks. The
Bank of Canada’s support for Canadian banks continued until the spring of 2010. Interestingly,
the global financial crisis subsided by the end of 2009, but CMHC cash injections to Canada’s big
banks didn’t wrap up until April 2010. The recession appeared to be behind us but Canada’s big
banks were still taking cash from this federal program in the fall of 2010.
By February 2010 and July 2010, all of the U.S. Federal Reserve and Bank of Canada loans had
been respectively repaid. While these funds were repaid in full, it is clear that the banks benefitted
enormously from public financing when private funds were unavailable. In addition, had the rapid
and enormous deployment of public funds not been available, most, if not all, Canadian banks
would have encountered serious difficulty.
http://www.zerohedge.com/news/quantifying-big-five-canadian-banks-114-billion-bailout
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