Thursday, February 26, 2009



If I am not mistaken, bank stability depends upon their assets to leverage exposure ratio. If the graph in John Mauldin's excellent article ( http://www.frontlinethoughts.com/pdf/mwo022009.pdf ) is correct,Canadian Banks have a couple of clicks more exposure than US banks, which is on the cusp of the 1/3rd least leveraged banks in the world (or at least on the list, which is quite comprehensive). So, peeling back the veil, the figure is for 2008, and we don't know how much involved Canadian banks have been in sub-prime type lending,or how high the spike in gasoline (which precipitated the mortgage/ credit mess) was in Canada. If for example the Canadian government counteracted high gas prices with tax credits, it would have attenuated the impact on the Canadian credit system.

For me, it raises more questions than it seems to answer, because it does not fit the scene. Canadian Banks may in fact be rock solid, but I'd like to to know more about why... or why the World Economic Forum figures indicate Canadian banks are less leveraged and Maudlin's article says they are more leveraged. Both can't be right. Personally, I hope the WEF figures are correct, because it would serve as a good banking model for the rest of the world, and having such a sizable neighbor more economically stable than the US is, would not be such a terrible thing...

Michael, thank you, for the article; sorry to seemingly rain on your parade; no evil intended; perhaps the disparity in figures can be put to the Twitterati.. kind of a light a candle rather than curse the darkness.

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