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Why Canadian Banks Survived the Financial Meltdown- Robin Trehan 

Every where, banks are undergoing extreme financial woes due to the financial meltdown. It seems like good beginnings don’t always have good endings, this is especially so for the American banks. Things started looking really good for the banking system -- real estate was booming and lots of people were taking out loans and great investment opportunities were present. Some investors were a bit foolish during these times and are now stuck in a rough financial situation -- it’s true when they say “a fool and his money are soon departed”. 

Even with all of this going on, it seems quite astonishing that the Canadian banks have been able to survive the financial meltdown. How did they do it? Looking into the Canada financial system, we see that there is less debt there. Homeowner liabilities are 20% in assets. This is actually close to stable and has been since the late ‘80s. Now, when compared to the U.S.’s 26% (huge spike occurred during the past decade) asset liability American homeowners have, Canada seems much more sustainable. 

The mortgages in Canada are also more appealing than the U.S.’s. The subprime mortgage market is only about 1/20 of all the mortgages that have been taken out. In America, it’s 1/6 mortgages that are subprime -- about a quarter of the mortgages taken out between 2004 and 2006 were in the subprime category. 

A penny saved is a penny earned -- being a smart is one of the best assets Canadian bankers have. Their banking culture is different and more prudent than the American banks -- most of the U.S. banks don’t apply prudent underwriting standards like the Canadian banks do. The standards of the Canadian banks require continuous income checks, job status verification, and sales contract requests among other things. A lot of American bankers are quick to hand out the keys to people who have no income, no job and no assets. 

Unlike with the America, there’s no bubble in the Canadian home market. To give a good idea, the prices for Canadian homes are about 200% higher than what they were back in ’89. In the U.S. the ratio peaked at 260% before crashing down to 220%. Canada has a steady rise of prices of 4-5% each year. Last, but not least, there are much fewer foreclosures in the Canadian real estate market. In the U.S., 4.5% of its mortgages are in 90-day arrears and in Canada its at a stunning .27%! With all of this in mind, you can understand why the Canadian banks have been able to avoid the financial crisis. But this doesn’t have to depress the U.S. banking system because every dark cloud has a silver lining.

Robin Trehan is partner at the PE firm of Credit Capital Funding creditcapitalfunding.com