Posted by David Macdonald under asset backed commercial paper, auto industry, Bank of Canada, banks, capitalism, corporate profits, economic crisis, economic risk, financial crisis, financial markets, financial regulation, free markets, global crisis, income distribution, inequality, recession, Role of government, Uncategorized.
April 30th, 2012
The CCPA today released my report: â€œThe Big Banks Big Secretâ€ which provides the first public estimates of the emergency funds taken by Canadian banks.Â The report bases its estimates on publicly available data from CMHC, the Office of the Superintendent of Financial Institutions, US Federal Reserve, the Bank of Canada, as well as quarterly reports from the banks themselves.
The conventional narrative about the performance Canadaâ€™s big banks during the financial crisis goes as follows: while American banks bet heavily on sub-prime real estate and had extensive shadow bank holdings, Canadian banks did not.
However, the details of exactly how much each Canadian bank received, when they received it, and what they put up as collateral, has remained locked away at CMHC and the Bank of Canada. Â Not even Access to Information requests have been able to free this information.
In this study I estimate that, at their neediest, Canadaâ€™s banks had received $114 billion in support, a figure equal to 7% of the size of Canadaâ€™s economy in 2009.
This is equivalent to $3,400 for every man woman and child in Canada.
It is almost 10 times more than the auto bailout for which Canadians put up $14 billion and for which the loan portion has been repaid.
During the financial crisis, Canadian banks accessed three separate programs from both the Canadian and U.S. governments. Canadian banks received $33 billion dollars (converted to $CDN) through the U.S. Federal Reserve programs. At the same time, they also accessed $41 billion at the peak of the crisis through a nearly identical Bank of Canada loan program. Finally, they received $69 billion selling mortgages to CMHC for cash.Â These peaks occurred at different times.
Canadaâ€™s Big 5 banks drew on government support programs for an extended period from October 2008 through June 2010.Â In other words, Canadian banks continued to rely on government supports for one and a half years, well after the financial crisis had subsided.
The largest recipients of aid were Scotiabank, Royal bank and TD Bank. They received an estimated $25-26 billion at their peak. Â CIBC received somewhat less money: an estimated $21 billion at peak. Â BMO received an estimated $17 billion.Â Most of these peaks, except for TD occurred in the early months of 2009.Â TD peaked much later in September 2009. (See charts below)
The banks are very different sizes in terms of market capitalization.Â Royal is the biggest and BMO is about a third the size or Royal.Â So Iâ€™ve also adjusted the figures for the size of the banks.
On the relative side, three of Canadaâ€™s biggest banks, Scotiabank, Bank of Montreal and CIBC, received estimated peak support that at some point was equal or greater than the value of the company itself. Â That is to say that at some point during the financial crisis, it would have cost less money for the Canadian and U.S. governments to have bought every single share in these companies rather than providing them with support. (see charts below)
CIBC in particular received estimated aid worth at peak 1.5 times the value of the company, it spent the better part of the first three months of 2009 underwater.
The federal government claims it was offering the banks â€˜liquidity supportâ€™ but it looks an awful lot like a bailout to me. Â Whatever you call it, government aid for the countryâ€™s biggest banks was far more substantial than the official line would suggest.
It is worth noting: Over the entire aid period, Canadaâ€™s banks remained profitable, reporting $27 billion in total profits between them and the CEOs of each of the big banks were among the highest paid Canadian CEOs. Between 2008 and 2009, each bank CEO even received an average raise in total compensation of 19%.
In the U.S., they called these sorts of programs: bailouts, in Canada we call them backstops. Â In the US, they have released the full details of the support, in Canada those details remain secret.Â It is time for the government to come clean with the actual figures of how much support each bank received, when they received it and what they put up as collateral.
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- Intellectual Dishonesty at the Ivey Business Journal (January 3rd, 2014)
- Stock Market Swindles Galore (April 2nd, 2012)
- The Caisse and the mysterious life of market makers (March 9th, 2009)
- The Meaning(lessness) of Money — Why “Quantitative Easing” Won’t Do What People Think it Will Do (March 3rd, 2009)
- Laughing All the Way to the err…Bank (February 14th, 2009)