You Don't Have to Cross the Ocean to Find a Good Bank

By Eric Roseman

Global Finance magazine's August 25 survey of the world's safest banks pegs The Royal Bank of Canada (RY), or RBC, as the world's tenth safest financial institution. Five other Canadian banks managed to land in the Top 50.

The world's safest bank – according to Global Finance – is privately held KfW of Germany.

The Canadian government, which continues to restrict foreign majority shareholder ownership of Canadian financial institutions, has long been viewed as a pariah in the banking industry as it prohibited cross-border mergers and acquisitions. But despite a tough 2008 marked by credit losses and rising loan loss reserves, not a single Canadian bank cut its dividend over the last 24 months.

As a result, more investors and depositors are looking to park money in senior Canadian bank debt or bank stocks, or by opening a new personal or business account at Canadian institutions. This is especially the case for Americans – many concerned about the future of their domestic banking system.

The safest way to own a piece of the Canadian banking sector is via senior bank debt. The bank stocks have already gone through the roof and should be avoided; I'd also wait before placing new funds into senior Canadian bank bonds and the Canadian dollar as both assets have already logged big gains since March. A correction would offer a better entry point for long-term investors.