A
customer stands outside of a shuttered Silicon Valley Bank headquarters
on March 10 in Santa Clara, Calif. The bank's collapse was followed by
serious trouble at other regional institutions, First Republic and
Signature Bank. (Justin Sullivan/Getty Images)
All
eyes are on the global banking sector after sudden turmoil brought down
or threatened a handful of U.S. banks and one major European bank this
month.
The collapse of Silicon Valley Bank (SVB), followed by the
near-death of two other regional institutions — First Republic and
Signature Bank — left market-watchers jittery and fearful of a domino
effect like the one that led to the global financial crisis of 2008.
And
that was before Credit Suisse — one of the biggest banks in the world,
safely housed in Switzerland of all places — came crashing down last
week. What do these financial tremors mean for Canadians?
What happened? And why?
Silicon
Valley Bank, First Republic Bank, Signature Bank and Credit Suisse all
faced different problems made worse by rising interest rates.
But the common thread was lack of confidence, says Pedro Antunes, chief economist at the Conference Board of Canada.
Banking
is built on confidence. If depositors lose faith, panic and rush to
withdraw their assets from a bank for fear of its failure — it can lead
to a bank run, as with SVB.
Sometimes, the panic spreads — often,
Antunes told CBC News, by social media. Regulators around the world are
now trying to contain the spread to prevent the collapse of additional
banks.
WATCH | Central banks try to halt crisis:
Global central banks band together to prevent crisis
Duration 2:19
Global
central banks have banded together to reassure world markets and
prevent the spread of the banking crisis that started with the collapse
of two regional U.S. banks earlier this month from spreading.
Have we seen this before?
Lawmakers
such as U.S. Treasury Secretary Janet Yellen have pushed back on the
idea that these incidents echo the onset of the global financial crisis
of the late 2000s. SVB's failure was the largest collapse of a U.S.
banking institution since Washington Mutual — among many others — went
under in 2008.
Shortly after longtime rival UBS agreed to buy Credit Suisse, central banks around the world — including the Bank of Canada — said they would intervene by offering cash and other support to banks, again in hope of halting the spread of failure and stabilizing the market.
Similar
measures were taken in 2008. But this is not a repeat of that crisis,
says Karl Schamotta, chief market strategist at Toronto global payment
company Corpay.
"Things are far more regulated today," Schamotta said, though there are concerns about a slowdown in economic growth.
"The
issues that caused the 2008 crisis — massive derivatives use, lots and
lots of exposure to the U.S. housing market — those are not present this
time around."
How does this affect Canada?
Canadians
don't have much to worry about, according to Schamotta, because our
banking system is "far more secure, far more diversified and far more
regulated," than those of the U.S. or Europe.
"So this is an
issue that is probably most important from a psychological perspective,
less important in terms of your bank deposits," he said.
The 2008
crisis was a global disaster, said Antunes, "but most of Canada's banks
did quite well through that. In fact, they came out quite strong."
"I
think that's still very much the story. We have a different banking
system," that's less competitive and easier to backstop than in the
U.S., he said.
But as concern grows about a possible hit to the
global economy, business investors "will be more prudent," said Antunes.
And such investments are important for driving economic activity and
Canadian trade.
Likewise, we could see a "tightening" of lending
standards around the world, says Stephen Brown, deputy chief North
America economist at the research firm Capital Economics.
WATCH | What does the SVB collapse mean for Canada?
What does the Silicon Valley Bank collapse mean for Canada?
Duration 6:04
Karl
Schamotta, chief market strategist for Corpay, says the collapse of
Silicon Valley Bank could mean a 'turbulent' time for Canadian
investors.
Banks might not be willing
to lend as much money or invest in equity bonds, according to Brown.
That could change investing patterns, which in turn could impact the
growth of global and U.S. GDP — and the Canadian economy by extension.
"Weaker GDP growth in the U.S. in general doesn't bode well for Canadian exports," added Brown.
"So
these are all reasons to think that the Bank of Canada in particular
probably isn't going to be forced back to resuming interest rate [hikes]
and probably will be cutting rates again before the end of the year."
Will this lead to a recession?
A recession was predicted in Canada for 2023, and recent events could lead to a slightly deeper dip in economic activity, said Antunes. However, any potential recession will differ from past slumps because the current slowdown is coming with few job losses, as employment continues to trend upward.
"This
recession is going to be very, very different for most households in
Canada, because we're in a situation where the labour market is very
much a big shock absorber," he said.
Schamotta says Canada and the worldmight
enter a recession in the months ahead, as the effect of interest rate
hikes "hits the bottom line for households and for businesses around the
world."
"Retail sales, employment, factors like that will tell us
about the health of the Canadian economy, about whether Canadian
households are cutting their spending and reducing how much they put
into the economy," he added.
"All of those things are going to contribute to whether we have a recession."
LISTEN | Is a recession looming?:
Front Burner 26:46
Will the banking crisis trigger a recession?
In
the last two weeks, four banks in the United States and one in Europe
have either found themselves teetering on the brink or completely
collapsed. In response, other private banks and governments all over the
world have rushed to try to contain the potential financial contagion.
On Sunday, the central banks of Canada, the US, Asia and Europe all
agreed to increase money available, which in turn would help banks lend
more to each other so they can stay afloat. Today on Front Burner, we
are talking to Canadian Jim Stanford. Just how bad this financial crisis
could get? How comparable will it be to the 2008 recession? And will
this mean for the average Canadian? For transcripts of this series,
please visit: https://www.cbc.ca/radio/frontburner/transcripts
Jenna
Benchetrit is a web journalist for CBC News. Based in Toronto and born
in Montreal, she holds a master's degree in journalism from Ryerson
University. Reach her at jenna.benchetrit@cbc.ca or on Twitter
@jennabenchetrit.
With files from Peter Armstrong, Laura MacNaughton and Reuters
SVB was running their business with a philosophy first and profits second. It turned out real well.
Todd Starnes
Reply to Marshall Upton
They made bad decisions, and were caught with their
pants down when interest rates went up. The Fed kept saying that
inflation was "transitory", then realized, "holy cow inflation isout of
control!", and jacked up the rates, causing SVB's unrealized liabilities
to make them insolvent. But OK, let's just blame "wokeness", it's
easier to understand.
Stephen Hay
Reply to Marshall Upton
Green.
David Amos
Reply to Todd Starnes
Methinks many would agree that the true blame belongs to
all the political lawyers operating within the banking systems N'esy
Pas?
Marshall Upton
Reply to Todd Starnes
So, SVB didn't have their own economists, they
just listened to what the Fed said without verifying it with their own
data and economists. No, you just simply corroborated my point.
Instead of banking for profit, they were banking for something else.
Marshall Upton
Reply to David Amos
Why are banks listening to political lawyers instead of their economists?
David Amos
Reply to Marshall Upton
Everything is political and it always about the money
Marshall Upton
Reply to David Amos
They found out it's not as political as they wished it was.
David Amos
Reply to Marshall Upton
Tell that to Frank Mckenna or Lisa Rait
Marshall Upton
Reply to David Amos
Why? They don't know it? They own or run banks?
David Amos
Reply to Marshall Upton
They run them
David Amos
Reply to David Amos
Lisa Raitt. Vice-Chair of Global Investment Banking at CIBC
The Honourable Frank McKenna has been an executive with
TD Bank Group since 2006 and joined TD Securities in January 2020. As
Deputy Chair he is focused on supporting the continued expansion of TD
Securities' global footprint.
Marshall Upton
Reply to David Amos
They do?
jeff johnson
What a ridiculous irresponsible headline. Why doesn't the cbc just ask people to start a run on the banks.
Todd Starnes
Reply to jeff johnson
Most people are too lazy to walk to the bank, let alone run to it.
David Amos
Reply to Todd Starnes
True I used my mouse to take my money out
Allan J Whitney
How is the Biden presidency working out for all you fans?
That's great.
Todd Starnes
Reply to Allan J Whitney
There are no Biden fans, just Trump haters and Trump lovers.
cedric thomas
Reply to Todd Starnes
I think you're right. I can understand American voters being polarized around the guy, but Canadians?
Crazy.
Todd Starnes
Reply to cedric thomas
There are no Canadians, just pseudo Americans with
Canadian passports... well except for Gordon Lightfoot, he's Canadian.
cedric thomas
Reply to Todd Starnes
I suppose you're right. We all watch American television and huddle around the border.
Todd Starnes
Reply to cedric thomas
And to be fair, we are all polarized about our leader, Justin Bieber.
Erica Bene
Reply to Todd Starnes
I am a Biden fan...
Todd Starnes
Reply to Erica Bene
OK, Name one good thing about him?
Denis Van Humbeck
Reply to Allan J Whitney
Trump was bad.
Mike Hamilton
Reply to Todd Starnes
I good thing about Biden? He isn't Trump.
Todd Starnes
Reply to Mike Hamilton
That was my original point. I'm glad you understood.
David Amos
Reply to Todd Starnes
At least I did and agreed
Chris Smith
Reply to Allan J Whitney
This is the direct result of a Trump partial reversal of Dodd-Frank banking reforms...
Todd Starnes
Hypothetically, if my checking account is overdrawn and
TD bank goes belly up, do I still have to pay them back? Hypothetically
of course, I would nnneeevvvverrr run an overdraft, say due to drinking
at the local bar every night. Never, never, never.
David Amos
Reply to Todd Starnes
Yes and No
Rusty Shackleford
"Banks are in turmoil." No they're not....They're
avoiding turmoil...mostly successfully, by the way.
This
sensationalist, American style of journalism has to stop. We deserve
(and pay for) better.
Don Mann
Reply to Rusty Shackleford
Well said !
Lucas Kendall
Reply to Rusty Shackleford
Well they are "trying" to avoid turmoil.
Frank Jackson
Reply to Rusty Shackleford
I said the same thing that this site writes about fear
and this issue is nowhere close to 2008 and of course they did not
allow it.
Chung Poo
Reply to Rusty Shackleford
It is actually CBC trying to avoid turmoil with said
sensationalist headlines that draw clicks... Sad but the road we are
driving.
Michael Richard
Reply to Rusty Shackleford
There is no such thing as news anymore. Every single
headline is AI generated to maximize click through with no concern for
dignity.
steve wilson
Reply to Michael Richard
Proof? Social media nonsense?
steve wilson
Reply to Michael Richard
So you work in mainstream media, ie this news outlet, and have personal knowledge of this?
steve wilson
Reply to Michael Richard
Complete nonsense ... give me proof. Do you work for a
REAL news outlet? Is that coming from personal experience? No? Thought
so...
David Amos
Reply to Rusty Shackleford
Dream on
Derek Golota
Reply to Rusty Shackleford
yep, if anything it was a good time to pick up
discounted bank shares ETF like RBNK or ZEB and enjoy dividends going
forward. Financial illiteracy in Canada is quite obvious and at full
display again.
Dano Pereriya
Reply to Rusty Shackleford
Not in turmoil, yet. They have approved and
allowed people to be heavily leveraged in mortgages. Look at the
variable rate mortgages, almost 20% of them have reached a trigger rate,
meaning they are negatively gaining years! We all spend more money than
we have, living well beyond our means, the banks are ok taking our
money and we are ok spending on credit.
Peter Ryerson
Reply to Rusty Shackleford
We’ll see how this story plays out.
😆
Todd Starnes
Turmoil - "a state of great disturbance, confusion, or uncertainty." That's not the banks, that's my life.
David Amos
Reply to Todd Starnes
That is the story of my life
Denis Van Humbeck
A market like 2008 is needed, we need to see fuel prices plummet along with food prices.
James Minion
Reply to Denis Van Humbeck
It’ll just hit Canada way harder than the US and most of the world this time around compared to the opposite 15 years ago
Todd Starnes
Reply to Denis Van Humbeck
2008 was great for me. I paid off all of my
debt using 0% teaser rates. The trick is to maintain employment. Which
as I look around this room, won't be too difficult for me.
David Amos
Reply to Denis Van Humbeck
I concur
David Amos
Reply to Todd Starnes
Why work?
Todd Starnes
Reply to David Amos
It's true, in 2023 who works anymore; 2 zoom
calls and 5 emails (from the comfort of the living room sofa) is a
considered rough day.
David Amos
Reply to Todd Starnes
Trust that I had I giving a lot of lawyers and
beancounters a very rough day during my last Zoom call and my email
today was a dilly to say the least
David Amos
Reply to David Amos
I had "Fun giving"
John Johnston
Canadian Banks are not in Turmoil.
Todd Starnes
Reply to John Johnston
It's true, this is about American banks. I'm here since
they allowed comments and these type of articles usually bring all the
Loonies. It's so much fun.
John Johnston
Reply to Todd Starnes
Most people here cannot make change at a lemonade stand
but they understand International Economics. Cheap entertainment. :)
Todd Starnes
Reply to John Johnston
That's true and Canadian Lemonade stands are better regulated than American Banks.
mike potter
Reply to John Johnston
Would we know if they were?
John Johnston
Reply to mike potter
Still have all my money.
David Amos
Reply to mike potter
Nope
John Johnston
Would you put all you money in a place Called "Bobs Bank"? I don't feel sorry for Americans.
David Amos
Reply to John Johnston
I don't
Ian Brodie-Brown
2008 and Canadian banks - three things come to mind. 1.
Famously the worlds largest Oil company at the time walked their
accounts across Wall St, from an American bank to RBC. (I wonder if they
are still there or perhaps after Swiss bank failure will Canadian banks
grow again?) 2. In the darkest days of the housing struggle due to all
the bad mortgage paper, the Fed Gov in Canada back stopped $50 billion
in mortgages, taking the lowest 25% that could potentially go bad off
the hands of any bank that wanted to secure themselves against
(potential) default. (Few needed to take the credit and mortgages were
reassumed by banks as the crisis waned). 3. The IMF was going to force
Jamaica into default, the BNS assumed a $500 million dollar debt to the
IMF on behalf of the Jamaican Gov. (How strong are our Banks? Strong
enough to assume the lending of the IMF on smaller nations national
debt. Because the Caricom and Latin nations are a huge part of Canadian
banking and our banks bring stability to them as well.
There is a 150 year anniversary history on the BMO that
was commissioned by the Chairman of the bank back in the 1960”s - to
commemorate the first 150 years - it is a very rare 2 volume hardback
which goes a long way to explain why our early Scottish bankers were the
very best in the world and while banks were failing in the UK - the
Canadian versions, smaller and regional, were taking lessons from their
larger cousins and putting in place checks and balances that are unique
in the banking world
Dawn Mack
Reply to Ian Brodie-Brown
Thank you. Feel better reading your information.
Ian Brodie-Brown
Reply to Dawn Mack
You’re welcome - BMO is great book on banking history (and Canadian) if you can find it
David Amos
Reply to Ian Brodie-Brown
Did you find me mentioned in that book?
James Minion
Reply to
Reply to James Minion
Sorry TD bank is down 14% in last month and at a 1 year low. Guess it’s skyrocketing in your eyes lol
Once you understand the difference between up and down
there might be a proper business conversation possible with you
Reply to James Minion
Oh, a one year low? The horror. You mean it dropped to
where it was just last year? So not the lowest in a decade or anything?
Dropping because of an irrational market is a great buying opportunity.
James Minion
Reply to Peter Hill
James Minion
Reply to Peter Hill
When stocks are plummeting you can keep buying lower and
lower and lower for years. Maybe you should understand bankruptcy and
defaulting since that can happen to corporations when they have too much
debt compared to assets. Just a matter of time when credit tightens
and recession hits and people lose jobs And can’t pay mortgage and are
forced to sell. Banks will lose on foreclosures as housing prices
plummet. Will start being common in 2024 but looking at the full
picture and the future doesn’t work for you.
Peter I’m sure you think the govt will bail them out
David Amos
Reply to James Minion
Methinks its not wise to bet on anything these days N'esy Pas?
John Chabot
Under Harper, the world was in turmoil, Canada sailed
through it barely noticing a thing, why? Harper government prioritize
Canadians, governed with Canadians’ interests and focused on Canada.
Today, Canada faces homemade crisis after crisis, vulnerable to any
negative economic trends, thanks to those voting for Trudeau
Larry McCarthy
Reply to John Chabot
Isn't that the same guy who "balanced" his budgets from the EI fund?
Mike Hamilton
Reply to John Chabot
Didn't he vote against the same banking regulations that allowed Canada to sail through it so easily?
Ian Brodie-Brown
Reply to Larry McCarthy
…and hid in a closet and jumped out a window …
bob zoolo
Reply to John Chabot
I guess you missed this part, Canadians don't have
much to worry about, according to Schamotta, because our banking system
is "far more secure, far more diversified and far more regulated," than
those of the U.S. or Europe.
bob zoolo
Reply to John Chabot
Harper was quoted as admiring the unregulated US banking
system , Thank goodness he wasn't in power before 2008 or we'd be in
the same boat as the US in 2008 and now
Mike Hamilton
Reply tobob zoolo
And he called himself an economist, that was funny.
bob zoolo
Reply to John Chabot
but conservatives always like to rewrite history
Peter Hill
Reply to John Chabot
You mean Harper had two recessions and we haven’t had one since he left? We know.
mike potter
Reply to John Chabot
According to USA economists, It's the revenue from
overcharging on banking service charges. Harper's contribution seems to
be nothing more than Conservative imagination.
David Amos
Reply to John Chabot
Pure D BS
Blair Longstaff
I have been saying this for quite sometime, the Office
of the Superintendent of Financial Institutions (OSFI) is a very
incompetent organization and do not have qualified staff to even
understand real banking issues.
Our organization just spent a considerable amount of
time teaching OSFI about the risks with climate change etc. and they
still do not get it. OSFI did a presentation on Monday and spoke in
general terms lifting messages from previous other documents that spoke
about things like the Board needs to understand climate risks. Its a
joke
Freeland needs to overhaul this mess
James Minion
Reply to Blair Longstaff
OSFI needs to start tightening Canadian bank lending ASAP.
Freeland doesn’t understand the difference between loose
spending and tightening spending and tightening lending.
David Amos
Reply to Blair Longstaff
Surely you jest
David Amos
Reply to James Minion
Freeland doesn't understand anything
James Minion
Canadian banks now have massive derivative use and huge
exposure to Canadian housing issues via variable rate mortgages and
mortgage fraud. The US is fine but Canadian banks in the last 6 years
copied all the mistakes US banks did from 02-07
Ian Brodie-Brown
Reply to James Minion
ABCP? Seems someone doesn’t know what they are talking about?
Peter Hill
Reply to James Minion
Then why are Canadian banks not having any issues?
James Minion
Reply to Ian Brodie-Brown
Asset Backed commercial debt is not the same as Canada’s mortgage debt.
24% of Canadian mortgages are variable rate where most
Canadians are telling the banks I can’t handle the extra $2 or $3 k a
month in interest or even $200 more s month. Canadian Banks aren’t
forcing people to pay interest on mortgages just like US banks did in
07.
A lot of these mortgages are backed up by the CMHC or
rally the federal government or at the end of the day the ‘Canadian
taxpayers’
Also Canada has the highest household debt to income
ratio in the world and corporate debt in Canada per capita is way higher
here than the US
Ian Brodie-Brown
Reply to James Minion
See the solution listed below - the cause in the US was ABCP - read your own words
James Minion
Reply to Peter Hill
Peter, the Canadian banks are having issues, they’re
just covering them up right now. Best for you to come back to that
question in 12-18 months and you might understand then.
Canadian banks are where the US banks were in March 07.
Most Americans didn’t think a American banking crises would happen
within 18 months so I can see why your so far in the dark
Ian Brodie-Brown
Reply to James Minion
Read number 2 below - you might learn something -
comparing Canadian banks to American banks is not like apples and
oranges, it is more like comparing apples to Alaska.
Peter Hill
Reply to James Minion
Except they’re not where American banks were in 2007.
James Minion
Reply to Ian Brodie-Brown
The cause in the US in 08 was teaser rate mortgages
(variable rate mortgages) which Canada has tonnes of now. About 24% of
all Canadian mortgages are variable/teaser rates.
What happened last week on two US bank was ABCP but
that’s much less risk than what happened to Swiss bank or what happened
in 08
James Minion
Reply to Peter Hill
Peter, enjoy your investments in Canadian banks.
They’ve only dropped over 15% in the last month so sounds like you’ll be
in amazing shape putting all your savings into their stocks
Peter Hill
Reply to James Minion
I’ve been buying more. No better time to buy Canadian
bank stocks than when the irrational market drops the share price. Add
in the DRIP and I’ll be able to travel more than I have been lately.
James Minion
Reply to Peter Hill
You might be able to travel around Canada more via
greyhound but internationally it’ll costs you way more in Canadian
dollars as the loonie is plummeting against all major currencies. Enjoy
all your road-trips in Canada.
The dividend going into Drip will drop to in the
following years. Keep buying the bank stock dips since they’ll continue
for quite a while. Hope your not crying too hard m about them in a year
or two if your actually investing in them lol
Peter Hill
Reply to James Minion
Nope, exclusively international travel. Exchange rate
doesn’t bother me because of all the money I make from my bank stocks.
Dividends at Canadian banks have never decreased, only increased. Even
through times off turmoil which isn’t these days. Probably going to
increase dividends more than usual for the next couple of years.
James Minion
Reply to Peter Hill
Hope you put your life savings in the Canadian banking
stocks now. The Canadian bank stocks now are as safe as a Canadian
making $100 k a year that took out a $1 M mortgage in 2021 at 1%
variable rates. Now that variable rates are 5.5% minimum it’s only an
extra 45 k a year in interest in a 100 k salary before taxes. Peter,
Sounds very very sound in your playbook. Also this isn’t the exception
this was the common mortgage Loan in Toronto and Vancouver the last two
years
David Amos
Reply to James Minion
Methinks you should check my work N'esy Pas?
Joe Freeman
How did this happen?
It was caused by regulation, fractional reserve and then
selling the derivatives on debt. Basically more money in the system
than actually exists
Todd Starnes
Reply toJoe Freeman
If there is so much money in the system, why are we all
broke? Sorry, gotta run, the new iPhone 17-1/2 is coming out tomorrow
and I need to line up at the ApeHole store.
Peter Hill
Reply toJoe Freeman
You mean things that happen everyday without issue.
Joe Freeman
Reply toPeter Hill
Until the customers claim their rightful property
Peter Hill
Reply toJoe Freeman
Because Canadians have so much money in the bank? I guess that explains why our economy is so good.
David Amos
Content Deactivated
Reply toPeter Hill
Nope
David Amos
Reply toJoe Freeman
Go Figure
Anthony Loopinski
When you bulk at taxes, the government just taxes you
through inflation. The largest transfer of wealth in history, and you
all missed it...
Peter Hill
Reply to Anthony Loopinski
Because inflation hurts the wealthy the most.
David Amos
Content Deactivated
Reply toPeter Hill
Nope
Lucas Kendall
Remember "Banking is built on confidence." and not
something tangible. It is as legitimate as crypto currencies that are
also "built on confidence"
Todd Starnes
Reply toLucas Kendall
I'm confident that the Crypto Ponzi will never collapse.
Ian Brodie-Brown
Reply toLucas Kendall
Sorry clepto currencies and banking do not belong in the same course curriculum …. Nice3 try though …
Lucas Kendall
Reply toIan Brodie-Brown
They are both forms of speculation and risk taking where you can lose everything so why not?
David Amos
Reply toLucas Kendall
Good question
Todd Starnes
Money is Trust. How is your trust level lately?
Peter Hill
Reply to Todd Starnes
If you don’t trust money I’ll take it off your hands.
Front Burner 26:46 
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