It is not surprising that media folks are dunking on #Canadian Banks. After all, there are bank crises in Europe and the US; why should we be exempt? They are easy columns to write and carefully couched: "it is possible"; "perhaps"; "we cannot rule out". Weasel words. 1/n
The last bank to fail in Canada was Home Bank in 1923. The banking sector was ruthlessly consolidated and now there are only six important banks and three or four small outliers in the country. As a result, each major bank is by definition systemically important in Canada. 2/n
The banking sector is closely regulated, much more so than in the US. There is no political hay to be made in Canada by asking for looser regulation. It is impossible to overstate the political disaster that would result from the failure of a Canadian bank. 3/n
A Canadian political party that let a bank fail on its watch would be out of office in days and would be forever tarnished. So it is not going to happen. In the extraordinarily unlikely event of a run, the Bank of Canada and the federal finance folks would be there in a flash 4/n
Quite aside from the history and the politics, because of their cozy oligopoly, the Canadian banks are very, very profitable, with Return on Equity always in the area of about 15%. They are well capitalized, and not particularly exposed to either real estate or energy. 5/n
They have diversified their revenue sources so that spread lending is no longer the prime driver of profit. Wealth management, prop trading and brokerage are all major profit centers. Can bad things happen? Sure. They are business, like any other, although much bigger. 6/n
Why, it was only 75 years ago that a Cdn bank last cut its dividend. So you never know. Meanwhile you can buy for example $TD at about 9x earnings with a dividend yield of 5% and a 25% percent discount from its 52 wk high. Quality on the cheap, which is how you get rich.
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