• Phoenix Capital...
    10/01/2014 - 11:24
    We have the very makings of a Crash. If stocks breakdown from this line and cannot reclaim it, we could easily wipe out all of the gains going back to 2013.

Presenting The Worst-Capitalized Central Bank In The West (Hint: Not The Fed)

Tyler Durden's picture




 

Submitted by Simon Black via Sovereign Man blog,

As the world’s top central bankers gathered at their annual jamboree recently, the governor of Bank of Canada, Stephen Poloz, undoubtedly received envious comments from his fellow money magicians for Canada’s perceived status as a global financial safe haven.

This newly found perception was perhaps best exemplified during a Bloomberg interview, when the CEO of RBC Wealth Management – the biggest financial institution in Canada said that “Canada is what Switzerland was 20 years ago, and the banks in Canada are what Swiss banks were 20 years ago.”

This is the new flavor of Kool-Aid. Canada is seen as the new banking safe haven and an “island of safety and stability” because of its perceived sound fiscal position, commodity wealth and solid economic performance.

Now, anytime I see central bankers slapping each other on the back, I’m going to be skeptical. But here at Sovereign Man, our conclusions are all data driven… so we dove into the numbers.

First, the Big Daddy himself—Canada’s central bank.

Any strong, healthy banking system requires a central bank with a pristine balance sheet… specifically, substantial net equity as a percentage of assets.

So how strong is the balance sheet for Banque du Canada? Not very.

As it turns out, Banque du Canada is actually the most pitifully capitalized central bank in the western world. They’re in such bad shape they actually make the Fed look healthy.

Hong Kong’s Monetary Authority Exchange Fund is a good example of a strong balance sheet; their latest figures as of 30 June show a whopping capital reserve equal to nearly 22% of total assets.

This is a massive margin of safety for the central bank.

The US Federal Reserve, on the other hand, shows a capital reserve of just 1.27%. And Canada? A tiny 0.47%… as in less than one half of one percent.

This isn’t safety and stability. It’s a rounding error.

Moreover, Canada also has ZERO reserve requirements for its banks; this means that Canadian banks are not obliged to hold any of their customers’ deposits.

So yes, it’s legally permissible for a Canadian bank to loan out 100% of its customers’ funds.

Not to worry, though. The Canadian Deposit Insurance Corporation (CDIC) is standing by to insure bank deposits up to $100,000.

But when you look at it closely, there isn’t much there for depositors at all. There’s roughly $646 billion of eligible deposits in the Canadian banking system. Yet the CDIC only has $2.8 billion in cash available to insure it all… a ratio of just 0.43%.

Even more troubling is that Canada has legislated an actual Cyprus-style confiscation of deposits in the event that Canadian banks deplete their capital.

Buried deep into the government’s Economic Action Plan 2013 is a provision that would implement a “bail-in” regime for “systemically important banks”.

This would legally allow the banks to tap into customer deposits if the banks get into trouble… something I don’t find particularly safe.

Last, the Canada myth really starts to become apparent when you look at the country’s gold reserves.

At the beginning of this century Canada held 46.19 tonnes of gold. Now they hold only 2.99 tonnes. That’s a whopping 93.5% decline in gold reserves in just over a decade!

In other words, Canada’s monetary leadership has made a conscious decision to reject real assets in favor of paper assets that can be conjured out of thin air.

They’ve managed to run their central bank into borderline insolvency.

It’s important to look at facts and not rely on sentiment.

To anyone who rationally looks at the data, the obvious conclusion is that Canada is certainly NOT the safe-haven it’s been built up to be.

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Wed, 09/03/2014 - 17:20 | 5177270 SafelyGraze
SafelyGraze's picture

no reserves required

none

 

Wed, 09/03/2014 - 17:21 | 5177274 knukles
knukles's picture

Gotta smoke, eh?

Wed, 09/03/2014 - 17:27 | 5177294 Mark Carney
Mark Carney's picture

Mission Accomplished!

 

your move Stephy boy!

 

LOL K BYE

Wed, 09/03/2014 - 17:33 | 5177315 El Oregonian
El Oregonian's picture

Oh, but Americans are Hoarding all that money! CNBC says so!

//sarc off

Wed, 09/03/2014 - 17:35 | 5177322 Pool Shark
Pool Shark's picture

 

 

"Reserves? We ain't got not reserves. We don't need no reserves. I don't got to show you any steenkin' reserves!!!"

 

 

Wed, 09/03/2014 - 17:48 | 5177358 remain calm
remain calm's picture

The funny thing about China's 22% capital reserves is that 3 trillion is in US bonds(dollars), Rot Roh Shaggy we got a problem, zoink!

Wed, 09/03/2014 - 18:45 | 5177578 cifo
cifo's picture

So what happens to the Central Bank of Canada if it becomes "insolvent"?

 

Wed, 09/03/2014 - 19:10 | 5177642 Leonardo Fibonacci2
Leonardo Fibonacci2's picture

"This newly found perception was perhaps best exemplified during a Bloomberg interview, when the CEO of RBC Wealth Management – the biggest financial institution in Canada said that “Canada is what Switzerland was 20 years ago, and the banks in Canada are what Swiss banks were 20 years ago.”

 I use to work for RBC several years ago.  I love how the top executives of RBC always make gratuitous comments without knowing a fucken thing about what they are talking about.  They hire newbies and offer them $45K/year to manage 400 personal accounts in the branches.  The salary is really crappy and the VP's say, "hey you work for the best bank in Canada &  you should be privileged to work for us. The salary is not that important!!"

While these VP fuckers make $250K +++ per year, bonus and massive stock options.  I say, FUCK OFF CAUSE YOU ARE TAKEN CARE OF & I GOT BILLS TO PAY!!!

 

Thu, 09/04/2014 - 00:21 | 5178541 bankerbackbacon
bankerbackbacon's picture

Leonardo Fibonacci2  you should be privileged to work for us.

 

You're right PHI their cheap fuckers, I worked for them at one point too. They work you like a slave too, and so highly leveraged. I used to fudge my sales numbers as they were nazi's for that as well.


Wed, 09/03/2014 - 20:15 | 5177781 Matt
Matt's picture

Parliament can put through a bill creating money out of thin air to recapitalize the central bank or any of the banks. As long as this was replacing destroyed money, it maybe wouldn't be inflationary.

Wed, 09/03/2014 - 20:36 | 5177848 Deathrips
Deathrips's picture

Parliment?

 

Its english parliment and their puppeteers that are pulling Canadas parliments strings.

 

Its theivery.

 

Ever hear of the Canadian Crown Corporations?

http://en.wikipedia.org/wiki/Crown_corporations_of_Canada

 

Check out what Canadians (and other commonwealths) own and what they are being drained of by the BOE and BIS.

 

RIPS

Thu, 09/04/2014 - 04:36 | 5178822 asteroids
asteroids's picture

The Loonie will crash. The gold and silver priced in Loonies will explode. Capital will leave the country. THEN it gets interesting as the world stupidest real-estate market will then implode as interest rates rise. Just as a good fraction of Canadians look to retire. Compare RY, TD, or BMO to JPM or GS. Straight up for 2014. But... it's too early to short anything yet or to buy gold or silver. But, that could change any day.

Wed, 09/03/2014 - 17:55 | 5177375 Slave
Slave's picture

So the facts don't fit the rhetoric? My tin foil hat detects that some tribal treachery is afoot.

Wed, 09/03/2014 - 18:15 | 5177470 BurningFuld
BurningFuld's picture

What you should do is teleport back to 2007 and bet against the Canadian Housing market for the win!

Wed, 09/03/2014 - 18:21 | 5177487 Duffy
Wed, 09/03/2014 - 17:34 | 5177318 kaiserhoff
kaiserhoff's picture

Yeah, but Canada is financing all of those crack houses in Vancouver.

What could go wrong?

Wed, 09/03/2014 - 17:34 | 5177323 nope-1004
nope-1004's picture

Canada produced such fine examples such as Justin Beiber and Mayor Rob Ford.  So what if both are coke addicts.  Just BTFLoonie, eh.

 

Wed, 09/03/2014 - 17:41 | 5177341 CCanuck
CCanuck's picture

Fuck you Mark Carney, the first Rat to Jump Ship and Take-off Eh!

Ask any Canuck what they think of our banking system..."Canada is #1, we did not screw around like the American Banks"

Canucks still think our banks did not require a bailout back in 2008...duhhhh! Former finace minister admitted to it 5 years after telling  the public that our banks were safe and did require assistance....Should have seen the tears when that cocksucker kicked the bucket 6 months after retiring...whaaa..whaaa..what a great politician they said...DUHHHHHH!

You should see the looks I get when I tell people their money will be taken just like in Cyprus, its already law!

They tell me to put on my tin-foil hat, and enjoy the hockey game...with that shleeple glazed over look...duhhhh!

Anyway.....FUCK YOU TWICE, Mark Carney, you cocksuckn' rat bastard!

 

Wed, 09/03/2014 - 17:51 | 5177393 The Fonz...befo...
The Fonz...before shark jump's picture

Agreed and look at the regulators in Canada.... The primary ones OSC and BCSC....

Look at the small ball these guys go after...it's either penny stocks, insider tracking (usually on a non bell weather stock)...never addressed HFT, sat on hands after the bailout....stealing a living.....these people also need to be strung up..useful idiots the lot of them

Wed, 09/03/2014 - 18:41 | 5177568 crazzziecanuck
crazzziecanuck's picture

Indeed.  CIBC was bailed out around something like 1.5 times the worth of the entire bank.

It would have been cheaper for the taxpayer to simply let it die.

Thu, 09/04/2014 - 08:04 | 5179050 Canbankr08
Canbankr08's picture

I'm pretty sure the bailouts came from the Fed though not from the BOC or the Canadian government and were supposedly "repiad in full" whatever that is supposed to mean these days...

Wed, 09/03/2014 - 21:42 | 5178091 angel_of_joy
angel_of_joy's picture

For a so-called Conservative who also doubles down as an economist, Stephen Harper looks pretty stupid right now. He appears more interested to play "tough" (insert your favorite sarcasm here...) in front of Putin, than to recapitalize his own fucking banks, or shore up his totally insane reals estate market...

Wed, 09/03/2014 - 17:31 | 5177309 BandGap
BandGap's picture

I'm invading Western Canada when the SHTF. I got it on a tip from these boards.

Wed, 09/03/2014 - 20:08 | 5177757 Deathrips
Deathrips's picture

I heard that rumor too. I also heard they give you a fresh plate out puotine, with warm cookies and milk after.

I have started researching by watching the movie "Canadia Bacon".

 

https://www.youtube.com/watch?v=2l_6a2H37QM

https://www.youtube.com/watch?v=l5l0PD80u9k

 

Study hard.

 

RIPS

Wed, 09/03/2014 - 18:27 | 5177511 booboo
booboo's picture

TAKE THAT YOU SNOOTY MAYO EATING FROGS

Wed, 09/03/2014 - 17:23 | 5177281 Relentless101
Relentless101's picture

Interesting. I didn't know Canada and the U.S. were different entities.

Wed, 09/03/2014 - 17:31 | 5177310 Dr. Engali
Dr. Engali's picture

We like to pretend that we aren't conjoined twins that happen to have a tumor attached at the south.

Wed, 09/03/2014 - 17:37 | 5177330 BobPaulson
BobPaulson's picture

I have tried to tell my friends here in Canada that in the early 90s they eliminated all deposit requirements and nobody believes me. They don't get that when a private bank like Scotiabank makes a mortgage, they just print it, voila. Once again, too surprising to believe. 

(Let me reiterate this: when a loan is made, the private bank can print Canadian currency into existence). All the bank of Canada does through the mint is print notes.

Wed, 09/03/2014 - 17:39 | 5177340 NeverForgetSilver
NeverForgetSilver's picture

My coworkers believe that nothing will happen to Canadian banks when I talked to them about bail-in. They won't believe me and accused me of lying.

Wed, 09/03/2014 - 18:13 | 5177465 Whalley World
Whalley World's picture

Shamefully, Canada lied through it's teeth on the safety of Canadian banks during the 08 crisis.  In fact, all the major Canadian Banks took a bailout and many were in excess of their market cap.

Here is the link to the Canadian Centre for Policy Alternatives white paper on "The Big Banks Big Secret" and the figures that spell out the bailout taken by each bank.

https://www.policyalternatives.ca/publications/reports/big-banks-big-secret

 

Wed, 09/03/2014 - 19:52 | 5177722 GrandPaFred
GrandPaFred's picture

Whalley World:

 

Truth be damned - all that matters is whether us sheeple bought the BS

 

[Democrecy - is the right to vote for our brand of thief...]

Thu, 09/04/2014 - 08:32 | 5179185 Canbankr08
Canbankr08's picture

I also have tried to tell people about the bail-in but they usually either don't care, don't believe me, or don't believe that a bail in situation could occur. It is kind of crazy, I just tell people don't beleive me go and read the federal buget from 2013 I can't remember the page # off hand but I've given it out before, you can go read for yourself if you like.

My favourite part of the whole Harper legalizes Cyprus style bailout in 2013 thing is that it took the S&P a whole year to realize and didn't downgrade any Canadian bank credit ratings until 2014. Then whenthey did they said it was because of some bs like "we believe the Canadian government might be less willing to bail out the banks then they were in the past." I was like ya... no shit... they said they aren't going to bail them out last year, there's no maybe they will or maybe they won't.

Wed, 09/03/2014 - 18:32 | 5177535 pitz
pitz's picture

Scotia has to borrow money from somewhere to fund any mortgage it issues.  Just like any other (non-central) bank in Canada. 

Wed, 09/03/2014 - 19:14 | 5177657 Womb Service
Womb Service's picture

No Pitz. Banks create money ex nihilo. Loans beget deposits. The Bank of England recently wrote a nice little paper explaining this. Do try to keep up.

Wed, 09/03/2014 - 20:43 | 5177875 pitz
pitz's picture

Central banks, perhaps.   But not commercial banks, such as Scotia, BMO, etc. 

Wed, 09/03/2014 - 21:15 | 5177979 Womb Service
Womb Service's picture

No, man. Commercial banks. You really need to get a clue. Or stop intentionally posting disinfo. 

Thu, 09/04/2014 - 10:26 | 5179666 BobPaulson
BobPaulson's picture

Money is debt, and since Canada is the only country in the world that has 0% fractional reserve, it all gets printed down at your corner friendly neighborhood bank. Ever notice how they don't give a shit about getting deposits anymore? Deposits are only useful to them to take to the tables.

Sorry bro, back of the class if you don't know what money is. That's entry level reading around here.

Fri, 09/05/2014 - 20:59 | 5187170 pitz
pitz's picture

Nope, commercial banks don't print.  They have to borrow.  Just like everyone else who isn't the Bank of Canada, in Canada. 

Wed, 09/03/2014 - 21:09 | 5177874 GrandPaFred
GrandPaFred's picture

pitz:

 

The way I see the Ponzie is this:

Bank creates Debt out-of-thin air per demand for loan[s]

Payments on this loan on other hand are assists - require real dollars

 

Shares/profits/investment/CEO perks drawn from income [assits inflow]

SHTF when inflow drops [bad loans/no new loans/poor stock investments etc]

 

Banks can and do try to smooth the fluctuations by exchanging overnight

Debt between themselves - however that then has cost on assit side.

 

Above seems 'airie and unreal' but take USA Debt where real Debt is reported 17 trillian but is actually some 220 trillian in IOU's. There isn't that many dollars printed to begin to cover 'payment-in-full' [USA isn't even able to cover interest on that debt without borrowing an extra 1 trillian every year]

 

Our whole financial system isn't based on assits like you and I are trying to live on. It's based on Debt - in other words Debt functions like a cancer... it consumes, never creates...

Wed, 09/03/2014 - 17:23 | 5177282 Infinite QE
Infinite QE's picture

Isn't this all just an illusion, this capital issue, when the entities can print money at will? Dark pools. Shadow this and shadow that. How can anyone believe any of it?

Wed, 09/03/2014 - 17:39 | 5177339 kaiserhoff
kaiserhoff's picture

Printing money is a great idea, until no one wants your currency.  One way this can go bad is when cash flow from the central bank goes negative, increasing the deficit, and soon you are printing to pay interest on your debt.

See Argentina..., once, twice, thrice...

Wed, 09/03/2014 - 21:47 | 5178115 angel_of_joy
angel_of_joy's picture

As some smarter guy nicely put it some time ago "Devaluing a currency is like peeing in bed. It feels good at first, but pretty soon it becomes a real mess."


Wed, 09/03/2014 - 17:25 | 5177287 cassotto
cassotto's picture
(Hint: Not The Fed) muwhahaha that one made my day

three cheers to you ZH!

Wed, 09/03/2014 - 17:25 | 5177289 Callz d Ballz
Callz d Ballz's picture

assets = larger printer cartridge

Wed, 09/03/2014 - 17:28 | 5177298 NeverForgetSilver
NeverForgetSilver's picture

Bank of Canada, like the rest of CBs, can print too. They have been doing that at half of the US rate.

Wed, 09/03/2014 - 17:29 | 5177302 Dr. Engali
Dr. Engali's picture

I guess the only safe thing to do is buy a ranch in Chile and store my gold in Switzerland.

Wed, 09/03/2014 - 19:19 | 5177663 Terminus C
Terminus C's picture

And Singapore.

Wed, 09/03/2014 - 21:15 | 5177972 GrandPaFred
GrandPaFred's picture

Dr. Engali:

 

You may store your gold with me - I'll take good care of it...

[just like Ft Knox - it's here, I swear... but, you can't get it back]

Thu, 09/04/2014 - 10:30 | 5179681 BobPaulson
BobPaulson's picture

How about a ranch in Alberta with your gold in your ranch?

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