Quantifying The Big Five Canadian Banks' $114 Billion Bailout

Tyler Durden's picture




 

“…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.

Visually:

 

And the best one:

Full report:

The Big Banks Big Secret - Canada open.pdf

h/t Ben Rabidoux

0
Your rating: None
 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 04/30/2012 - 11:49 | 2385186 niktamere
niktamere's picture

Canada susceptible to bank runs?

That's it. Im calling the Trash & Pail

Mon, 04/30/2012 - 11:50 | 2385192 Richard Chesler
Richard Chesler's picture

Cockroach banksters know no borders.

Mon, 04/30/2012 - 11:52 | 2385198 niktamere
niktamere's picture

Who is Richard Chesler and why should we care?

Mon, 04/30/2012 - 11:55 | 2385206 Buckaroo Banzai
Buckaroo Banzai's picture

wait WHAT? The politicians LIED??!?

Mon, 04/30/2012 - 11:58 | 2385214 Mark Carney
Mark Carney's picture

I got this, move along nothing to see here.......

Mon, 04/30/2012 - 12:01 | 2385220 niktamere
niktamere's picture

FSB duty kinda dull, eh?

Mon, 04/30/2012 - 12:16 | 2385254 Mark Carney
Mark Carney's picture

Im a squid, I got hands in all pockets, check your back pocket....IM IN THERE!

Mon, 04/30/2012 - 13:04 | 2385378 flacon
flacon's picture

...but at least the new polymer $100 smells like Maple Syrup. Taking the whole "you can't eat money" to a whole new level.

 

 

New Canadian 100 Dollar Bills – Feel Like Plastic, Smell Like Maple Syrup

http://moneyjarbudget.com/2011/11/new-canadian-100-dollar-bills-feel-like-plastic-smell-like-maple-syrup/

 

..and it's "almost indistructible" (except by the central bank):

 

http://www.youtube.com/watch?feature=player_embedded&v=GvqjqRG6VnM

 

 

 

Mon, 04/30/2012 - 13:21 | 2385470 niktamere
niktamere's picture

Yeah They do smell like maple syrup

 

also saw news piece about a jew named Moses who managed to ruin one, called for monetary reform. or something.

http://montreal.ctv.ca/servlet/an/local/CTVNews/20120119/mtl_polymer_shrinkage_cash_110119/20120119/?hub=MontrealHome

Mon, 04/30/2012 - 14:07 | 2385724 A Nanny Moose
A Nanny Moose's picture

Good work. Now I can rest at ease and go back to basketb...err...hockey.

Mon, 04/30/2012 - 14:12 | 2385745 The.Oracle
The.Oracle's picture

Oh yes, great central planner +1

Mon, 04/30/2012 - 11:52 | 2385199 Future Tense
Future Tense's picture

There's no where to hide. Every fiat currency is structurally unstable. The last hope for any sanity, Switzerland, tied their boat to a shinking ship in the euro. It feels like under every rock there is a black swan waiting. I think the most surprising, yet the most obvious, is the coming rise in the US 30 year treasury bond. It is the only "guarantee not happen" left in the system that will happen. Good discussion on that topic here:

http://www.ftense.com/2012/04/us-treasury-bonds-lets-play-musical.html

Mon, 04/30/2012 - 12:23 | 2385266 strannick
strannick's picture

only good thing bout the swissie was its link to gold which it cut in 2001. why not just get gold?

Mon, 04/30/2012 - 17:21 | 2386497 DrunkenPleb
DrunkenPleb's picture

Crazy nationalists that they are, the SVP understands the value of stable money and has a volksinitiative underway to restore that link:

http://www.admin.ch/ch/d/pore/vi/vis415t.html

Mon, 04/30/2012 - 11:49 | 2385188 Stoploss
Stoploss's picture

Famous last words..

Mon, 04/30/2012 - 11:50 | 2385194 HoofHearted
HoofHearted's picture

Nobody could have predicted this. Nobo...nevermind, the Tylers were on it once again.

Mon, 04/30/2012 - 11:50 | 2385195 alangreedspank
alangreedspank's picture

Bailout, eh ?

Mon, 04/30/2012 - 13:05 | 2385392 Spitzer
Spitzer's picture

ZeroHedge hit piece on Canada's BNN last year.. By a professor of course hahahaha

http://www.youtube.com/watch?v=rAD0hLjJLKo&feature=plcp

Mon, 04/30/2012 - 13:19 | 2385453 Miss Expectations
Miss Expectations's picture

Did Campbell Harvey (banking expert from Duke University) actually call ZeroHedge "Gutter Journalism"?

Good catch, Spitzer.

Mon, 04/30/2012 - 11:50 | 2385196 WALLST8MY8BALL
WALLST8MY8BALL's picture

Slap Shot through the 5 hole! Eh Hosers!

Mon, 04/30/2012 - 11:53 | 2385197 GOSPLAN HERO
GOSPLAN HERO's picture

O Canada!

Mon, 04/30/2012 - 12:58 | 2385364 Spitzer
Spitzer's picture

Speaking of Canadian banks... ScotiaBank is feeling the pain of its bailout inflation right now.

http://freegoldobserver.blogspot.ca/2012/04/federal-reserve-bullion-bank...

Mon, 04/30/2012 - 11:53 | 2385200 Gene Parmesan
Gene Parmesan's picture

Lies. We will continue to get lies and misdirection for as long as the MSM lets them remain unchallenged and unaccountable.

Mon, 04/30/2012 - 12:17 | 2385252 j0nx
j0nx's picture

As long as the MSM continues to be owned by one or two people/conglomerates who have vested interests then that timeframe for remaining unchallenged and unaccountable would be indefinitely.

Mon, 04/30/2012 - 15:15 | 2386015 marathonman
marathonman's picture

The MSM benefits from this corruption.  They care about the banks that hold their financing.

Mon, 04/30/2012 - 11:59 | 2385213 canuck0hedge
canuck0hedge's picture

Why the discrepancy between the performance of Canadian banks and their US counterparts?

Mon, 04/30/2012 - 12:02 | 2385222 Seize Mars
Seize Mars's picture

I think it was Assange who said that he wanted to "expose world leaders as the murderous liars that they are."

Well this is just one more data point.

Mon, 04/30/2012 - 12:01 | 2385223 CryingBear
CryingBear's picture

are the tylers considered MSM now?

Mon, 04/30/2012 - 12:02 | 2385226 CryingBear
CryingBear's picture

i like to think alot

Mon, 04/30/2012 - 12:03 | 2385227 lolmao500
lolmao500's picture

Yeah if you count that in GDP/bailout money, the Canadian government gave more to the banks than the US government did... yet, ask anyone here and they'll tell you that the Canadian government is not a puppet of the banks.

Fucking please.

Mon, 04/30/2012 - 12:35 | 2385303 Canaduh
Canaduh's picture

The level of stupidity/sheepleness/denial is much stronger up here, where people think because we've had a 'conservative' government, we breezed right through the financial crisis. Stephen Harper for global Prez!

Mon, 04/30/2012 - 12:05 | 2385230 Anton LaVey
Anton LaVey's picture

To which, one can only reply: BLAME CANADA!

 

http://www.youtube.com/watch?v=5JX4gWcWRAo&feature=related

Mon, 04/30/2012 - 12:05 | 2385231 chet
chet's picture

Banks weaker than thought with a housing bubble about to burst.  The median detached home in Vancouver is now $1 million plus.  The pop is going to be spectacular.

Mon, 04/30/2012 - 12:19 | 2385262 j0nx
j0nx's picture

But it's the PNW. It can't happen there!

Mon, 04/30/2012 - 12:59 | 2385373 chet
chet's picture

"It's different here!" 

Incredibly, we managed to convince ourselves of that for a full year after the housing market tanked everywhere else in the country.  It still takes a while for the pony express to deliver us the news out here.

Mon, 04/30/2012 - 13:17 | 2385439 owensdrillin
owensdrillin's picture

I think we have seen the peak in the Vancouver prices and the crash will happen within the next year. Once the investors see that an NDP government (provincial) is going to take back power next year, the party will be over.

I do not favour either party in BC but the NDP absolutely kill business. Look for a 40% decline in prices in the lower mainland. Even after that they will still be unafordable and ridiculously high.

Prices have been dropping for the past 3-4 years in all other areas of BC. It's just the lower mainland and Victoria that have been rising during that same time.

Mon, 04/30/2012 - 14:07 | 2385723 chet
chet's picture

That's my take as well. I think it as already peaked or may peak briefly in the early summer this year.  I agree on the 40% to 50% down.  The bulls up there have all the same rationalizations we did down here, particularly about how the banks will fare okay because they've "passed on the risk" through federal home insurance.  But they still have plenty of mortgages and HELOCs on their books, and exposure to MBS, I believe.

Mon, 04/30/2012 - 14:37 | 2385860 The.Oracle
The.Oracle's picture

Yup, Canadians basically glossed over this several year economic downturn by taking equity out of their homes with HELOCS like you mentioned. Just read today that the Canadian economy actually shrunk during March--but I bet you household debt didn't. Everyone here thinks they own their house because they have a mortgage... This whole thing has been like watching a slow motion demolition

Mon, 04/30/2012 - 12:34 | 2385297 alangreedspank
alangreedspank's picture

And household debt 150% of median income, oh Canada!

Mon, 04/30/2012 - 13:34 | 2385560 Metalredneck
Metalredneck's picture

Our market here is ready to pop.  I have a low overhead & even lower expectations, so I'll be fine.

Mon, 04/30/2012 - 15:31 | 2386066 garypaul
garypaul's picture

We've been waiting so long for that "pop" that I'm thinking it might not even happen - i.e. we go straight into high inflation.

Mon, 04/30/2012 - 12:04 | 2385233 TradingJoe
TradingJoe's picture

Ben! it's Noon! WTF are you doing, eh?!

Mon, 04/30/2012 - 12:06 | 2385236 buzzsaw99
buzzsaw99's picture

They will eat those words in the future. The Canada PTB boast profusely that deposit-taking financial institutions hold the majority of the mortgages in Canada:

http://www.imf.org/external/pubs/ft/wp/2009/wp09130.pdf

 

IMO the housing bust has yet to begin in earnest in Canada and the coming bailouts will be enormous.

Mon, 04/30/2012 - 12:09 | 2385239 rosiescenario
rosiescenario's picture

.....and no one in the Canadian press mentioned the lies? Guess that investigative reporters are extinct worldwide....well, except for that feisty one in Ireland........

Mon, 04/30/2012 - 12:14 | 2385244 niktamere
niktamere's picture

freedom of the press, for those who own the press

Mon, 04/30/2012 - 13:02 | 2385385 Spitzer
Spitzer's picture

BNN had a hit piece about ZeroHedge last time this happened...

http://www.youtube.com/watch?v=rAD0hLjJLKo&feature=plcp

I will check The Lang & Oleary Echange show tonight..

I think Kevin O'Leary knew about this all along. Listen to him in this video

http://www.youtube.com/watch?v=EFqmvKn7Jao&feature=plcp

 

Mon, 04/30/2012 - 13:23 | 2385486 niktamere
niktamere's picture

Love kev

Ill be tuned in too

Mon, 04/30/2012 - 19:32 | 2386878 niktamere
niktamere's picture

wasnt bad

Mon, 04/30/2012 - 12:58 | 2385363 Herkimer Jerkimer
Herkimer Jerkimer's picture

Oh yeah, I've got to second that one. How many finance guys in our papers, sat on this one, or they wouldn't get another interview from a bank or financial institution, ever again, eh?

 

Herk

 

•J•
V-V

Do NOT follow this link or you will be banned from the site!