Main menu:

History of RPE Thought

Posts by Tag

RSS New from the CCPA

  • Help us build a better Ontario September 14, 2017
    If you live in Ontario, you may have recently been selected to receive our 2017 grassroots poll on vital issues affecting the province. Your answers to these and other essential questions will help us decide what issues to focus on as we head towards the June 2018 election in Ontario. For decades, the CCPA has […]
    Canadian Centre for Policy Alternatives
  • Does the Site C dam make economic sense for BC? August 31, 2017
    Today CCPC-BC senior economist Marc Lee submitted an analysis to the BC Utilities Commission in response to their consultation on the economics of the Site C dam. You can read it here. In short, the submission discussses how the economic case for Site C assumes that industrial demand for electricity—in particular for natural gas extraction […]
    Canadian Centre for Policy Alternatives
  • Ontario's middle and working class families are losing ground August 15, 2017
    Ontario is becoming more polarized as middle and working class families see their share of the income pie shrinking while upper middle and rich families take home even more. New research from CCPA-Ontario Senior Economist Sheila Block reveals a staggering divide between two labour markets in the province: the top half of families continue to pile […]
    Canadian Centre for Policy Alternatives
  • Join us in October for the CCPA-BC fundraising gala, featuring Senator Murray Sinclair August 14, 2017
    We are incredibly honoured to announce that Senator Murray Sinclair will address our 2017 Annual Gala as keynote speaker, on Thursday, October 19 in Vancouver. Tickets are now on sale. Will you join us? Senator Sinclair has served as chair of the Truth and Reconciliation Commission (TRC), was the first Indigenous judge appointed in Manitoba, […]
    Canadian Centre for Policy Alternatives
  • How to make NAFTA sustainable, equitable July 19, 2017
    Global Affairs Canada is consulting Canadians on their priorities for, and concerns about, the planned renegotiation of the North American Free Trade Agreement (NAFTA). In CCPA’s submission to this process, Scott Sinclair, Stuart Trew and Hadrian Mertins-Kirkwood point out how NAFTA has failed to live up to its promise with respect to job and productivity […]
    Canadian Centre for Policy Alternatives
Progressive Bloggers

Meta

Recent Blog Posts

Posts by Author

Recent Blog Comments

The Progressive Economics Forum

Were the Canadian Banks Bailed Out?

The conventional line has been, no. Our banks were strong. Unlike the US and Europe, no bailout was needed to deal with the global financial crisis of 2008.

This line, of course, always conveniently neglected the Extraordinary Financing Framework, or dismissed it as trivial.

Now Finance Minister Flaherty – seeking new powers to turn down foreign investments by our banks – has clarified the situation, as reported in the Globe:

Unlike the United States and Europe, the Canadian banking sector has survived the global financial crisis largely unscathed as not a single Canadian bank has gone under. Yet Mr. Flaherty noted the Canadian government did step in to help the banks at the onset of the crisis.

“Ultimately, it all leads to Ottawa doesn’t it?” he said. “If you look at what happened in 2008, we guaranteed the wholesale debts of the banks, we purchased insured mortgages from them. These were all decisions taken here by the government in co-operation with the Bank of Canada.”

So, the Canadian banks needed a helping hand from the government in the form of guarantees and asset purchases to weather the storm.  In short,  a bailout. Which is why the Minister wants powers to shape bankers decisions, in case he has to do it again.

Enjoy and share:

Comments

Comment from John W. Warnock
Time: December 8, 2011, 10:17 am

A short while ago a real estate agent I know told me (while sort of laughing) that he had just sold a new $500,000 house to a young couple with no money. In Regina. A 30 year mortgage. What about the down payment? The bank which provided the mortgage also gave them a Home Equity Loan, which they used to provide the down payment. Why would the bank do that? I asked (while knowing full well the answer). He replied, “there was no risk for the bank as CMHC has insured the mortgage.” And no doubt bundled it up in a MBS, backed 100% by the taxpayers. But this is different from the USA.

Comment from Paul Tulloch
Time: December 11, 2011, 5:04 pm

Who really knows what happened with our banks. There is such a small groups of individuals involved at the commanding heights, that I do not think even the governor of the bank of Canada knows to what degree Canadian banks were bailed out. Information within such a small group of such massive wealth is privileged.

So potentially we will never know.

Comment from Grant C
Time: December 15, 2011, 10:04 am

Ahem. That was nothing remotely resembling a bailout.

The Canadian government offered to purchase INSURED assets. As in, assets that were absolutely no risk to the banks whatsoever anyway. The banks did not need “bailing out” and the Canadian government did not do this to somehow rescue the banks from owning already guaranteed safe assets.

They did it to free up credit as a wider economic stimulus measure in the face of the then impending total freeze up of the global credit system. They would take those mortgages off their books to free up capital for more lending.

The banks couldn’t have cared less whether those purchase guarantees were made. The mortgages were already fully insured, they were not going to lose any money on them either way.

Comment from Murray Gold
Time: December 19, 2011, 6:20 pm

Remember the ABCP crisis? Some $35 billion of ‘non-bank’ asset backed commercial paper? In the U.S., regulators compelled the banks to bring equivalent ABCP onto their balance sheets. Not so in Canada – OSFI protected the banks, not the consumer. That was Canada’s bank bailout.

Comment from DrD
Time: January 21, 2012, 8:48 am

1) There was no bailout, the purchase of performing mortgages that were guaranteed by the government was a liquidity injection, just like businesses that use factoring companies it gave banks cash in place of cash flowing assets, so that thye had the liquidity to continue to lend thats not a bailout, the governmnet lends overnight money at 1%….they were likely collecting 4-5% on those performing mortgages. Good deal for all. Re: the couple with the loan….banks won’t lend you the downpayment in Canada….unless you have other assets to secure the loan and disclose that the down payment was borrowed. Our lending criteria in Canada is pretty strict which is WHY we survived the crisis….my bet is this couple circumvented good lending/borrowing policy and went straight to a mortgage broker who got them private money…excellent realtor that does the deal for the commission and then shows the couple that cant afford it, how to get the mortgage throught the back door….

Comment from Paul Tulloch
Time: February 3, 2012, 9:03 am

http://www.levyinstitute.org/pubs/wp_698.pdf

An interesting study for assessing the size of the Fed bailout south of the border. I wonder if such a study could be done in Canada, that is, taking into consideration the cosy relations between the banking sector and the state. Although, given the size of the transfers and guarantees south of the border, it looks like their financial sector is probably closer than a communist system. Some staggering numbers!

Just a follow up on that aching feeling that Canadian banks got more than we know.

So much for capitalism and the rise of the shadow banking system- the rot in the foundations that is hidden and untouched- the self regulating markets in action!

Write a comment





Related articles