Banks in Canada get a lot of protection.
One thing that helps drive profit is CMHC mortgage insurance.
Wouldn’t it be great to make an investment where you got the profit and somebody else took over the risk?
The unfortunate side effect of this economic boosting is the the spectre of taxpayer liability for housing bubble fallout.
But what if the banks bailed out the CMHC after being bailed out by the CMHC?
Sounds a bit like a perpetual motion machine but that’s what BMO analyst John Reucassel is suggesting could happen if the CMHC went bust:
“It appears to us that the CMHC is reasonably well capitalized and positioned to meet the challenges from a housing slowdown. However, investors may be concerned that, in a severe downturn, Canadian banks may either a) need to recapitalize the CMHC; or b) absorb some of the losses.”
Read the full article over at the Financial Post.