

Banks too big to fail, now even biggerer - cwan
http://paul.kedrosky.com/archives/2009/09/too_bigger_to_f_1.html

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9oliYQjP
Having bigger banks is not necessarily all bad. One of the reasons the
Canadian financial system was rocked to a lesser extent than the rest of the
world's is because our banking industry is dominated by a handful of big
stable players. So their growth strategies recognize that they can't possibly
take huge market share away from competitors. Instead, they focus on taking
less risky gambles that will provide sustainable growth and minimize the risk
of losing existing market share. The American banking sector seems to have a
lot more competition but the competition breeds some idiotic pissing matches
as each player jockeys for a better position while the opportunity exists.

All this said, Canadian banks are notorious for being super conservative due
to the lack of competition. During good economic times, this can be bad
because they're less willing to say, provide small business loans.

EDIT: was looking for marketshare stats and came across this article:
<http://online.wsj.com/article/SB124268900278332309.html> The top 5 banks in
Canada have 85% of the banking assets.

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jhancock
Interesting take on why Canadian banks are doing well. I had heard a different
take earlier this year. I read they were doing well because the Canadian gov
did not deregulate to allow them to take the types of risks that banks,
investment banks, and insurers have done in the U.S.

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9oliYQjP
Yes, that was also part of it. There was a period of time when the Canadian
banks wanted to merge to form even bigger banks and reduce competition
further. The Liberal government during the 1990s and early 2000s prevented two
mergers that would have seen 4 of the top 5 banks merged into 2 companies.
Then they went a step further and said they would not approve any mergers
until a proper framework was in place for proving that a given merger would
not a) unnecessarily concentrate economic power, b) reduce competition, and c)
practically limit the government's ability to regulate the new entity.

The Finance Minister at the time, Paul Martin, was the same man who brought
Canada's spiralling deficit under control during the 1990s by helping to break
a promise to cut a federal sales tax and cutting social program spending. He
was a big factor in getting the Liberal party into majority governments
between 1993 and 2003 even though he pretty much hated the Prime Minister of
the time. Ironically enough, when the Prime Minister Jean Chretien decided to
give up the reigns of power to Paul Martin, Canadians were pissed at the
Liberals for a corruption scandal that saw tax payer money funnelled to
various businesses in Quebec to promote the concept of a united Canada.
Remember that in 1995, Quebec was 1% of the popular vote away from being in
favour of separating from Canada; so close of a call that France had lined up
in support for recognizing Quebec as a country while the Clinton
administration lined up against it. Anyways, Paul Martin was popular enough
that he won the election in 2003 but with a minority government, which in a
parliamentary system means that the opposing parties can essentially gang up
on the ruling party and force another election.

This happened in early 2006, when Canadians had a chance to hear the details
of how tens of millions of dollars were spent on putting Canadian flags on
things like the F1 race in Montreal. They decided to vote in the Conservatives
of Stephen Harper, but with a minority government, and we've been ruled by
them ever since. I brought up all of these details because funny enough, one
of the things the Conservatives wanted to do was push through the same
financial deregulation reform that had happened south of our border.
Unfortunately, having a minority government they could not do that. The
Canadian banks were pushing the government to allow them more freedom and the
government was simply waiting for a chance, one that they did not get because
even after calling another election prematurely when they thought they had a
chance to win big time, they got another minority mandate from the people.

So you could say that Canadians were a bit lucky. A two-bit scandal involving
tens of millions of dollars of tax payer money spent to pay for propaganda in
the 1990s to help avoid the fracture of our country had the indirect effect of
ensuring that our legislation could not "catch up" to the rest of the
westernized world. And all the while Stephen Harper has been essentially
counting his blessings because he knew that his government would have pushed
through the banking deregulation reforms in 2006. That's why it makes me laugh
when he goes on CNN or to Wall Street to boast about our banks. He wanted to
change the rules he's now praising.

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cwan
It's simply not true or as simple to say that Canada hasn't fallen into the
same issues as other institutions because of regulation. Yes, consolidation
was denied but investment banks were part of retail banks long ago.

Megan McArdle has a good post on this:
[http://meganmcardle.theatlantic.com/archives/2009/05/canadia...](http://meganmcardle.theatlantic.com/archives/2009/05/canadian_exceptionism.php)

~~~
9oliYQjP
It is a good article, but I'd say a more precise word for Canadian banks is
that they're skeptical, rather than Conservative. I think skepticism helps to
define Canadians. We were skeptical enough to not join the Americans in
leaving the monarchy. The difference between skepticism and conservatism is
being open to the possibility of change. Here's where I think regulation did
come into play. While the Canadian banks were and are skeptical, I think they
had had enough proof by the mid 1990s that the American style of banking was
the future, that they were willing to change. It's the rationale for the
merger requests to the Liberals in the 1990s. They wanted to be big enough to
play with the big boys down south. That meant playing the same style of game.
I think we dodged a bullet.

I'm be no means a Liberal fan boy, and for the life of me, I can't understand
why Paul Martin _didn't_ let the mergers to happen. No doubt his social circle
of friends would have been coaxing him to do just that (can you tell I'm a bit
cynical when it comes to politicians?). But read some of the accounts of the
merger situation, from more than 10 years ago, like this one:
[http://74.125.47.132/search?q=cache:FlhuiCh6d7sJ:www.thecana...](http://74.125.47.132/search?q=cache:FlhuiCh6d7sJ:www.thecanadianencyclopedia.com/index.cfm)
For those trying to downplay the role the government had, the proof is in some
library archives. Just read it. Here's a juicy tidbit:

 _Banking and government sources both say Martin did his utmost to be
diplomatic. He did not want to appear to have made up his mind, given that the
federal competition bureau would not deliver its report on the mergers for
almost two weeks, but he also wanted to prepare the banker for bad news. Like
everything else arising from this year’s ill-fated bank mergers, however, this
meeting between two of the most powerful figures in Canadian finance went off
the rails fairly fast. For weeks, Cleghorn’s fuse had been growing shorter as
his frustration mounted over Canadians’ inability to understand the bankers’
point of view. In response to Martin’s evasiveness, something apparently
snapped. Cleghorn asked straight out whether the Royal’s merger with the Bank
of Montreal, and the Toronto Dominion Bank’s copycat arrangement with the
Canadian Imperial Bank of Commerce, were going to be allowed to proceed. "No,"
Martin said simply. Cleghorn, according to both banking and federal government
sources, said something along the lines of "No, but . . . ?" or "Unless what?"
Martin repeated his first answer. "No."

This was when the usually composed banker lost it, according to government
officials. Watching a year’s work sacrificed to what the bankers see as
political expediency and parochialism was apparently too much to swallow. His
face grew red and he pounded the table, while giving the minister an earful.

For once in his life, Martin remained ice-cool. As Cleghorn gave vent to his
complaints, all the finance minister said was: "John, you’re not listening to
me." Sources close to Martin say he repeated this phrase several times before
Cleghorn calmed down._

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cwan
I suppose it really depends on how you define what the "American style of
banking" is and what the causes of the economic collapse were. For instance,
if Canada had allowed for the mergers, would they be in an even stronger
position today (given that it wasn't so much size that has prevented them from
failing)? After all the failures of the banks in the US weren't so much the
result of mergers as they were of mispriced portfolio assets - driven in large
part by the combination of ratings agencies, loosening requirements at Fannie
and Freddie (of which Canada doesn't have an equivalent), etc.. Clearly
regulations were different and I don't think though that it's fair to blame
this on any given style of banking or even deregulation for that matter.

You may find this article interesting as well:
[http://causesofthecrisis.blogspot.com/2009/09/three-myths-
ab...](http://causesofthecrisis.blogspot.com/2009/09/three-myths-about-crisis-
bonuses.html)

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vijayr
Is biggerer a word?

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jhancock
According to the Farrelly brothers, dumberer is a word, so I guess we can
include biggerer as well ;)

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RyanMcGreal
Bigger share of the total != bigger.

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cwan
The reason that they're considered too big to fail is the % of the market they
represent and to a lesser extent the actual dollar numbers. This being said I
think you'll find that if you look at both the actual numbers and percentages
they have been growing in a number of metrics especially after the
consolidation/failure of those like Bear Stearns and Merrill.

