Pani sent in two interesting links recently – the first is to a look at why Canadian banks seem to be faring so much better than their OECD counterparts in this downturn:
Canadian banks’ pre-crisis balance sheet structures were broadly similar to those of banks in other OECD countries with one notable exception – funding structure. Canadian banks were in the top quartile of the OECD sample in terms of their use of depository funding. The advantage of stable deposit funding may have insulated them from the freeze of wholesale funding markets, contributing to their resilience.
Why do Canadian banks have a firmer grip on depository funding? Environments and circumstances are important factors. On the supply side, large Canadian banks, benefiting from their nationwide footprints and a universal banking model, are able to offer one-stop service to households, which helps attract and retain household savings. On the demand side, in recent years, Canadian banks experienced slower asset growth than their neighbours in the US, leading to a narrower funding gap and hence a lower need for wholesale funding in addition to household savings
The second link is to a note about the Feds stated willingness to employ ‘shock’ interest rate jumps, and the difficulties in pursuing such a policy. The following is a quote from Carl Walsh quoted in the Wall Street Journal:
[O]nce the Fed does start raising the federal-funds rate out of its current record-low range near zero, “it should be increased quickly,” Mr. Walsh argued. “There is no support for raising rates at a gradual pace once the zero rate policy is ended.”
Based on recent anecdotes, quickly rising interest rates would have a dramatic impact on our local real estate market. It’s a good thing our banks are so healthy… or are they?
