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AmericasAugust 3 2009

Canada's lesson for the world

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Confidence in and respect for the banking system are increasingly rare sentiments among the general public, but Canada's banking system has managed to achieve both. A survey by the Canadian Bankers Association (CBA) earlier this year revealed that 91% of Canadians are confident that their deposits are secure, while 92% agree that the strength of Canadian banks is critical to the health of the country's economy.

Compared with many other jurisdictions, Canadian banks have also performed well during the financial meltdown and the subsequent global slowdown. Of the 11 Canadian banks listed in this year's Top 1000, only one - Canadian Imperial Bank of Commerce (CIBC) - made a loss (of $4.31bn).

And nine of these 11 Canadian banks grew last year. Number one in Canada (34th in the global ranking), Royal Bank of Canada, grew its assets by 16.4%. It also increased its core Tier 1 capital by 3.5%. Second in Canada (and 40th in the global list), Scotiabank grew by 19.1%. As a result of its acquisition of Commerce in March 2008, Toronto-Dominian Bank (third in Canada, 46th worldwide) grew its assets by 28.6% and its Tier 1 capital by 27.1%.

From the vantage point of more troubled financial systems around the world, regulators looking at Canada may wish that they, too, had imposed strict capital requirements as well as a leverage cap on their domestic banks. This may have put the brakes on business growth in the boom time, but Canada's banks have spent the past two years reaping the benefit of their relatively conservative asset-to-capital limit of 20 to one; others have spent the same period reaping the whirlwind sown by leveraging up by 50 times or more.

Governments which have been forced to pump billions of dollars into their financial system will look with envy to their Canadian counterparts, who have not been asked to shore up their financial system with taxpayers' money; many may wish that they, like the Canadian government, had kept a tighter rein on their own property and mortgage markets.

As many governments struggle to find a balance between encouraging banks to build reserves and capital and keeping the economy going, in Canada lending has continued to grow at a sustainable pace. Figures from the CBA indicate that lending to businesses increased by 6.3% between April 2008 and April 2009, and to consumers by 14% in the same period.

Top Canadian Banks ($M)

Top Canadian Banks ($M)

Top Canadian Banks by Aggregates ($M)

Top Canadian Banks by Aggregates ($M)

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