Canada’s Economy Vulnerable To European Woes
“Canada’s Finance Minister Jim Flaherty has said that the Canadian economy is vulnerable to any collapse of European banks because of the large impact it would have on America.”
“The minister said that there was little Canada could do to help Spain, the fifth largest economy in Europe. Spain is the latest casualty of the Europe crisis that could potentially choke trade and investment in Canada if there is a domino effect. However, Flaherty said Canada can prepare for any contingency and the country has the experience of the 2008-09 meltdown to draw form. He said, “We did not have to bailout out our financial institutions.1..so we know what steps are available to be taken.2“
1. Not true.
“Canada’s biggest banks accepted tens of billions in government funds during the recession, according to a report released today by the Canadian Centre for Policy Alternatives.
“Canada’s banking system is often lauded for being one of the world’s safest. But an analysis by CCPA senior economist David Macdonald concluded that Canada’s major lenders were in a far worse position during the downturn than previously believed.”
“It says support for Canadian banks from various agencies reached $114 billion at its peak. That works out to $3,400 for every man, woman and child in Canada, and also to seven per cent of Canada’s gross domestic product in 2009.”
2. As for what “steps are available to be taken” that Flaherty refers to?
“Canadians tend to believe their banks are safer and more backstopped than elsewhere in the world. The federal government enthusiastically promotes the notion, and loves to take credit for it.
“Ottawa is contemplating the possibility of a Canadian bank failure — and the same sort of pitiless prescription that was just imposed in Cyprus. Meaning no bailout by taxpayers, but rather a “bail-in” that would force the bank’s creditors to absorb the staggering losses that such an event would inevitably entail.”
Important note: when you deposit funds into a bank, you become a “creditor” of the bank. A “bail-in” forces bank’s creditors (people with money in the bank) to absorb any losses. Worried? Should you be?
““Canadian institutions have substantial unsecured debt obligations in the wholesale market and as well as other classes of capital, and they have substantial capital as well, so once you stack all of that up, regardless of whether one would look to reach into it…it’s hard to fathom why it would be necessary,” he said.
“Asked if this would include non-insured deposits — those over $100,000 — Carney referred to a previous statement from Finance Minister Jim Flaherty’s office that depositors were excluded.”
Considering how honest Canadian politicians have been on this issue, we can only hope they are honest here.