UPDATE: The Canadian Bankers' Association has responded to the CCPA's report, telling The Huffington Post that no Canadian banks were in danger of failing during the financial crisis, contradicting a claim in the CCPA's report.
“They seem to be implying that liquidity support is the same as a bank bailout and this is not the case,” CBA spokeswoman Rachel Swiednicki said in an email. “These funding measures were put in place to ensure that credit was available to lend to businesses and consumers to help the economy through the recession. These funding measures were not put in place because banks were in financial difficulty.”
More of the CBA’s response to the report can be found at the bottom of this article.
Canada’s banks were bailed out by U.S. and Canadian institutions to the tune of $114 billion, says a new report from the Canadian Centre for Policy Alternatives.
The report puts a large dent into the perception that Canada’s banks survived the financial collapse of 2008 without the need for the sorts of government bailouts seen in the U.S. and Europe.
According to the report, titled The Big Banks’ Big Secret: Estimating Government Support for Canadian Banks During the Financial Crisis, Canada’s biggest banks relied heavily on support from the Bank of Canada, the Canada Mortgage and Housing Corp. and the U.S. Federal Reserve between October, 2008 and July, 2010.
By the CCPA’s estimates, that works out to $3,400 for every man, woman and child in the country. On a per capita basis, that’s more than what U.S. banks needed. The most liberal estimates for the U.S.’s Troubled Asset Relief Program (TARP) place the cost at around $3,000 per person.
“At some point during the crisis, three of Canada’s banks—CIBC, BMO, and Scotiabank—were completely under water, with government support exceeding the market value of the company,” CCPA Senior Economist David Macdonald said in a press statement Monday. “Without government supports to fall back on, Canadian banks would have been in serious trouble.”
Over the same period, the CCPA notes, Canada’s big banks recorded a combined total of $27 billion in profits and the banks’ CEOs received an average pay raise of 19 per cent.
“For instance, Edmund Clark of TD Bank saw his overall compensation jump from $11.1 million in 2008 to $15.2 million in 2009,” the report states.
The CCPA stresses that these numbers are estimates, because the government has not released an official account of the bailouts.
“While the details around the American bank bailout are fully available to the public (due to a legal challenge forcing this information into the open), the Canadian federal government and Bank of Canada offer far less transparency."
The study used the bank’s own public statements, as well as reports from the Office of the Superintendent of Financial Institutions (OSFI) and the Bank of Canada to put together
It says the Canada Mortgage and Housing Corp. -- the governmental body that insures Canadians’ mortgages against default -- bought up $69 billion-worth of mortgages from the banks.
UPDATE: The CBA is defending the CMHC's buyout of mortgages held by banks, saying the total amount spent to buy them was only "55 per cent of the allocated amount." The bankers' industry group argues that many of the mortgages "were already insured and therefore, created no additional risk for the government. ... CMHC estimates that by the time the program has ended, the [mortgage buyout program] will have generated an estimated $2.5 billion in net revenues for the government (and therefore taxpayers)."
"Three of Canada’s banks -- CIBC, BMO, and Scotiabank -- were at some point completely under water, with government support exceeding the value of the company,” the report states. “In March 2009, CIBC stood out for receiving support worth almost one and a half times the value of all outstanding shares. It would have taken less money to have simply bought all the shares in CIBC instead of providing it with support.”
Canada’s financial institutions have been lauded over the past three years for seemingly having weathered the global financial storm without the need for large-scale bailouts. The country’s smooth economic sailing during the crisis has made Canadian finance bigwigs like former Finance Minister Paul Martin and Bank of Canada Governor Mark Carney into quasi-superstars in the financial world.
But the CCPA argues that reputation is undeserved.
“The details uncovered in this report fly in the face of repeated assurances that Canadian banks did not need extraordinary support. Nothing could be further from the truth. Three of Canada’s banks drew support that was worth (at peak) more than the total value of their company,”
The Huffington Post Canada has contacted the Canadian Bankers’ Association and several banks for comment, and will update this story with their responses.
UPDATE: The Canadian Bankers' Association has responded to the CCPA's report in an email to The Huffington Post. Here are some highlights of that email:
Although the financial crisis did not begin here, Canada’s financial markets were impacted. During the global financial crisis, a number of large banks in other countries became insolvent, and either failed or received taxpayer-funded bailouts where the government bought part or all of those banks. For example, since the beginning of 2008, 436 banks in the US have failed. Due to the crisis of confidence in global credit markets, some funding sources that banks normally relied upon became unavailable.
Canadian banks get about two-thirds of their funding from deposits, which shows the strengths of our banking system. The other one-third come from credit markets and it was these markets that were seizing up. Funding was less available. Canadian banks continued to lend and increased their lending after some non-bank lenders pulled out of the Canadian market.
While some of the funding came from Bank of Canada programs, according to the Bank of Canada, Canadian banks needed less official central bank liquidity support than their foreign counterparts. The Bank of Canada publicly outlined how this funding would be provided to the market....
It is important to remember that Canada’s banks are well-regulated and the Office of the Superintendent of Financial Institutions (OSFI) carefully monitors individual banks to ensure that they remain financially stable.
The Oxford dictionary defines bailout as “financial assistance to a failing business or economy to save it from collapse”. That definitely was not the case here: not one bank in Canada was in danger of going bankrupt or required the government to buy an equity stake under taxpayer-funded bailouts.
The financial support extended to BMO amounted to 118 per cent of the bank's value at the time, according to the CCPA.
The financial support extended to CIBC amounted to 148 per cent of the bank's value at the time, according to the CCPA.
The financial support extended to RBC amounted to 63 per cent of the bank's value at the time, according to the CCPA.
The financial support extended to Scotia amounted to 100 per cent of the bank's value at the time, according to the CCPA.
The financial support extended to TD amounted to 69 per cent of the bank's value at the time, according to the CCPA.