The strength of Canada’s banks has become the stuff of international legend, having skated through the 2008 global financial crisis unscathed. The official story is that strong regulation saved the day. Unofficially, there’s a different story.
During the peak of the financial crisis, support for Canadian banks reached $114 billion—$3,400 for every man, woman, and child in Canada, according to a study released by the Canadian Centre for Policy Alternatives (CCPA).
Between October 2008 and July 2010, Canada’s largest banks relied heavily on financial aid programs provided by the Bank of Canada, Canada Mortgage and Housing Corporation (CMHC)—even the U.S. Federal Reserve—all at the same time.
Over the entire aid period, the banks reported $27 billion in total profits between them and the CEOs of each of the banks were among the highest paid Canadian CEOs. Between 2008 and 2009, each bank CEO received an average raise in total compensation of 19%.
The extraordinary amount of support given to the banks was kept secret, and CCPA senior economist David Macdonald says, “The government claims it was offering ‘liquidity support’, but it looks like a bailout to me.”
He adds, “Whatever you call it, Canadian government aid for the country’s biggest banks was far more indispensable than the official line would suggest.”
The study estimates the value of government support through data provided by CMHC, the Office of the Superintendent of Financial Institutions and the Bank of Canada, as well as quarterly reports of the banks themselves.
But, the study raises more questions than it answers, due to the tight hold the government has over full funding details. Macdonald calls on the Bank of Canada and CMHC to release how much support each Canadian bank received, when they received it, and what was put up as collateral.
“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,” says Macdonald. “Without government supports to fall back on, Canadian banks would have been in serious trouble.”
He adds, “A healthy and resilient banking sector cannot operate under the shroud of secrecy. Details of the massive taxpayer support Canadian banks received should be released in the name of transparency and accountability.”
In his view, financial sector regulation should be strengthened to prevent the need for similar measures in the future.
The CCPA study focused on the period of 2008 through 2010, and did not take into account government agency activity in smoothing out the third party asset backed commercial paper mess that blew up in 2007.