Fed's Remarkable Disclosure of Funds for Canada’s Five Largest Banks

Includes: BMO, BNS, CM, RY, TD
by: Mark McQueen

News item: Big Five banks tapped Fed for $111 billion funds during financial crisis

I’m reminded of Bill Clinton’s infamous line: “I did not have sexual relations with that woman, Ms. Lewinsky.” Thanks to the U.S. Federal Reserve, the proverbial blue dress has now been found.

It was about a year ago that I wrote a post about the $75 billion financial assistance program that the Canadian government provided to the Canadian banking fraternity between September 2008 and March 2009 (see prior post “No Canadian bank bailouts? Says who?” December 10-09). Not that the program wasn’t vital to stabilizing the domestic banking system, but I was annoyed about the crowing that “Canadian banks didn’t need any help.”

The disclosure this week from the U.S. Fed is remarkable (via the Globe and Mail), and we’ve now learned that the U.S. government provided an additional $111 billion of financial assistance to Canada’s five largest banks. That’s on top of the $75 billion Canadian government capital relief program via CMHC.

A pseudo injection of $186 billion of capital — in the form of transferring assets to governments in exchange for cheap cash — seems like a whack of money for an industry that obstensiby required no public support during the recent financial crisis:

There is ony a subtle distinction between injecting capital into a bank and relieving it of assets so that it can avoid a capital injection. Kind of like your Mom/Dad temporarily buying your bike from you when you ran out on money in University, and then selling it back to you six months later when you were flush from a summer job.