Canada

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Here is the story in Canada:

  • Debt to GDP = 91%
  • Current interest rate: 0.5%
  • Gold Reserves – $0
  • Bail-In Regime – see: http://www.budget.gc.ca/2016/docs/plan/ch8-en.html
    • NOTE: Markets will not crash before this legislation is in place
    • This applies to the big 6 banks, BUT WAIT…
    • Supporting a Robust Credit Union System Across Canada

      The federal credit union legislative framework provides an option for credit unions that seek to grow regionally or nationally. Recognizing that credit unions considering the federal framework may face transition challenges, the Government will propose legislative measures to provide targeted protection against transitional risks and facilitate a smooth entry process.

Introducing a Bank Recapitalization “Bail-in” Regime

To protect Canadian taxpayers in the unlikely event of a large bank failure, the Government is proposing to implement a bail-in regime that would reinforce that bank shareholders and creditors are responsible for the bank’s risks—not taxpayers. This would allow authorities to convert eligible long-term debt of a failing systemically important bank into common shares to recapitalize the bank and allow it to remain open and operating. Such a measure is in line with international efforts to address the potential risks to the financial system and broader economy of institutions perceived as “too-big-to-fail”.

The Government is proposing to introduce framework legislation for the regime along with accompanying enhancements to Canada’s bank resolution toolkit. Regulations and guidelines setting out further features of the regime will follow. This will provide stakeholders with an additional opportunity to comment on elements of the proposed regime.

Bail-in Regime for Banks

Canada’s financial system performed well during the 2008 global financial crisis. Since that time, Canada has been an active participant in the G20’s financial sector reform agenda aimed at addressing the factors that contributed to the crisis. This includes international efforts to address the potential risks to the financial system and broader economy of institutions perceived as “too-big-to-fail”. Implementation of a bail-in regime for Canada’s domestic systemically important banks would strengthen our bank resolution toolkit so that it remains consistent with best practices of peer jurisdictions and international standards endorsed by the G20.

Canadian Bank Leverage Ratios

Leverage ratios show the ability of a bank to cover losses in the event of a crash or a bank run (people pulling their money from the banks). It is the ratio of Assets (loans) to Tier 1 Capital. Here are the numbers:

  • RBC – 4% (25:1)
  • TD – 3.7% (27:1)
  • Scotiabank – 4% (25:1)
  • BMO – 4% (25:1)
  • CIBC – 3.8% (26:1)
  • National Bank of Canada (26:1)

Before Bear Stearns failed in early 2008, they had a leverage ratio of 2.85% (35:1).

 

Canada Bank Short Positions – as of October 18, 2016 (bets the stocks will go down):

Symbol Company Name Shares Short (Million) Net Change Prior Month Short Ratio Stock Price Short Position $ Value (Billion)
TD TORONTO-DOMINION BANK (THE) 84.73 -1.32 37.65  $        58.80  $         4.98
BNS BANK OF NOVA SCOTIA (THE) 42.78 -1.49 25.50  $        70.72  $         3.03
RY ROYAL BANK OF CANADA 34.05 0.27 18.29  $        83.60  $         2.85
CM CANADIAN IMPERIAL BANK OF COMMERCE 14.90 0.37 11.99  $      101.03  $         1.51
BMO BANK OF MONTREAL 22.15 0.09 21.72  $        85.07  $         1.88
NA NATIONAL BANK OF CANADA 15.68 -1.27 16.13  $        45.72  $         0.72
  • Source: Yahoo Finance
  • NOTE: TD, BNS and RY all are on the TSX list of most shorted stocks (by number of shares)

http://www.fool.ca/2016/02/10/why-are-so-many-investors-shorting-canadas-banks/