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Bank failures, bank runs and other musings
March 19, 2023
8:37 am
mordko
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SVB was somewhat special in that it wasnt well diversified and grew fast but in other respects it was very normal and experienced problems any bank might. Not sure about any of these for Canadian banks, but on the face of it, our banks are unlikely to be immune.

1. One of the factors behind SVB failure was a post-2008 regulatory requirement to hold lots of safe bonds. SVB did. I assumes Canadian banks do as well.

2. As rates started to rise and price to market dropped, SVB was permitted to ignore market pricing and use nominal value of bonds. Is this common practice in Canada?

3. A massive run on cash happened very fast for a number of reasons. In theory, if an internet rumour (true or false) were to spread, it can happen to any bank.

4. This is normal in a rising rate environment. Lots of US banks went bust in a very similar manner in the early 80s. Canada has the same issue.

5. US government stepped in to remove the risk from banks and depositors to taxpayers. This may incentivize reckless future behaviour. Our government has not done so yet but there is an expectation that it would.

Overall, unless production can be ramped up fast, failures are expected and needed to subdue inflation. Thats what they are raising the rates for. So, we should expect some failures.

March 19, 2023
6:45 pm
Loonie
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Swiss bank Credit Suisse has now fallen. Swiss gov't is putting in billions to enable UBS to buy up the remains.

No doubt there are unique factors (and excuses) at play here, as there always are. On the other hand, which country is most renowned for its banking sector?

March 19, 2023
8:45 pm
AltaRed
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Credit Suisse has been a rogue bank for many years, involved in many global scandals and fined a number of times. It seems like CS was regularly in the news for all the wrong reasons. The final straw was when the Saudis refused to inject more capital into CS last week. What did they not like?

March 20, 2023
4:53 pm
Bill
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Re my post #96, I've removed Tangerine from my list of places I'd exceed the CDIC limit, just Big 5 now.

March 20, 2023
5:01 pm
suburbs4life
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Bill said
Re my post #96, I've removed Tangerine from my list of places I'd exceed the CDIC limit, just Big 5 now.  

Why?

March 20, 2023
5:38 pm
Loonie
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If Credit Suisse has been a "rogue" FI for a number of years, as AltaRed suggests, then I have to assume that Swiss banking is not as well regulated as I would have expected.

Today's newspaper informs me that the Swiss government has made up to US$162 billion available for this bail-out because of the dire consequences for international banking if they fail to do so (not to mention dire consequences for the reputation of Swiss banking!).

The reason given for the failure was that material weaknesses in the bank's internal controls on financial reporting last year had been found recently.
Make of it what you will.

March 20, 2023
6:21 pm
Bill
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suburbs4life, just an abundance of caution, don't particularly feel good about the way our world (not just financial world) is going, probably just my age. Plus I don't really need the extra interest they're currently giving (especially considering my marginal tax rate) so it's a bit of a luxury for me.

March 22, 2023
12:07 am
RetirEd
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Hmmm.. If Tamgerine is owned and operated by Scotiabank, they have some pretty good backing. Not quite the same as Signature Bank's cryptocurrency business.

Bottom line - so far, nobody seems to have lost their deposits. Shareholders, not so much...
RetirEd

RetirEd

March 22, 2023
4:33 am
Patch002
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RetirEd said
Hmmm.. If Tamgerine is owned and operated by Scotiabank, they have some pretty good backing. Not quite the same as Signature Bank's cryptocurrency business.

Bottom line - so far, nobody seems to have lost their deposits. Shareholders, not so much...
RetirEd  

Agree.
My confidence in Canadian banks is 99.99%. However, due to the 0.01% chance of a problem, it is in my best interest to spread the deposits among the FI's in order to be protected with the CDIC limits.
Remember, if you don't want to be in a Predicament, don't put yourself in a position where a Predicament could happen and affect you.

March 23, 2023
11:15 am
butterflycharm
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Patch002 said

Agree.
My confidence in Canadian banks is 99.99%. However, due to the 0.01% chance of a problem, it is in my best interest to spread the deposits among the FI's in order to be protected with the CDIC limits.
Remember, if you don't want to be in a Predicament, don't put yourself in a position where a Predicament could happen and affect you.  

Means your "confidence" is 0% in Canadian FIs hence you are spreading but 100% (?) in CDIC 🙂

March 23, 2023
1:17 pm
RetirEd
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Patch002: Agreed. I keep between five and ten financial institutions on tap at all times. (Lack of precision for privacy's sake)
RetirEd

RetirEd

March 24, 2023
3:46 am
Patch002
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butterflycharm said

Means your "confidence" is 0% in Canadian FIs hence you are spreading but 100% (?) in CDIC 🙂  

Allow me to simplify.

Even though you believe that the basket is sturdy,
Don't put all your eggs in one basket.

April 5, 2023
7:56 am
ExtraSauce
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For those investing in Banks:

National Bank Presents List of ETFs to Help Investors Monitor Market Situation

12:09 PM EDT, 03/15/2023 (MT Newswires) -- National Bank on Tuesday presented a list of exchange-traded funds that investors can use to monitor the rapidly evolving situation amid the collapse of the Silicon Valley Bank and Silvergate bank.

Canadian ETFs with the least regional bank exposure include BMO Equal Weight Banks Index ETF (ZEB.TO), BMO Covered Call Canadian Banks ETF (ZWB.TO), iShares S&P/TSX Capped Financials Index ETF (XFN.TO), and Hamilton Canadian Bank Mean Reversion Index ETF (HCA.TO), to name a few.

The Canadian ETFs with the most regional bank exposure include BMO Equal Weight US Banks Index ETF (ZBK.TO), RBC U.S. Banks Yield Index ETF (RUBY.TO), BMO Covered Call US Banks ETF (ZWK.TO), and Harvest US Bank Leaders Income ETF Class A (HUBL.TO).

US ETFS with the least regional bank exposure include SPDR S&P Capital Markets ETF (KCE), Invesco KBW High Dividend Yield Financial ETF (KBWD), Gabelli Financial Services Opportunities ETF (GABF), and the iShares Global Financials ETF (IXG).

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