Thursday, February 26, 2009

Banking on Canada

It is ridiculously easy to poke fun at banks and the bankers who work there.

"A bank is place where they lend you an umbrella in fair weather, and then ask for it back when it begins to rain"

"It is easier to rob by setting up a bank than by holding up a bank clerk"

Q: "What is the difference between an investment banker and a pigeon?
A: A pigeon can still make a deposit on a BMW"

It isn't often one feels compelled to give Canada's chartered banks a pat on the back.

But, that day has arrived at TSB after a recent Newsweek article, praising the Canadian banking system as the global standard. What is especially remarkable is that the piece was written by an American writer for an American audience in a U.S. publication.

Did you know?:

- Canada is the only country in the industrialized world that has not faced a single bank failure during the current financial crisis.

- The World Economic Forum recently ranked Canada’s banking system the healthiest in the world. America's ranked 40th. Britain’s 44th.

- Over the past 15 years, as the U.S. and Europe loosened regulations on financial industries, Canada refused to follow suit, seeing the old rules as useful shock absorbers.

- Canadian banks are typically leveraged at 18 to 1 compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1.

If there is a silver lining in the gloomy economic clouds, it may be found with how Canadian banks are positioned to weather this storm. Canadian banks are well capitalized and poised to take advantage of opportunities that American and European banks cannot seize. The Toronto Dominion Bank, for example, was the 15th-largest bank in North America one year ago. Now it is the fifth-largest. It hasn’t grown in size; the others have all shrunk.

Where is the banking industry headed?

Who can say for certain, but there are indications it promises to be anything but dull.

In light of the current crisis, isn't it interesting to read what Thomas Jefferson stated more than two centuries ago? Back in 1802, America's third president was quoted as saying, "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered". Jefferson's predecessor at the White House echoed those sentiments as John Adams opined, "All of the perplexities, confusion, and distress in America arises, not from the defects of the Constitution or Confederation, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit, and circulation".

Is there something America needs to learn about banking from its neighbours to the north before the economy heads further south?

"The only reason a great many American families don't own an elephant is that they have never been offered an elephant for a dollar down and easy weekly payments"

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