RE:RE: Soundness of the Canadian Banking System

Chart from the Geneva-based World Economic Forum that rates the ‘soundness’ of each countries banking system. Enjoy!!

 

 

 

 

 

soundness-of-banks-ranking

Bank Of Canada To Buy More Mortgages

Remember a few weeks back that the Bank Of Canada would purchase mortgage securities worth $25 Billion from the crown owned and controlled CMHC (Canadian Mortgage and Housing Corporation)?

Well today it was announced that the Bank of Canada will increase the amount of mortgage securities to $75 Billion total to help the floundering Canadian housing market.

Although on paper this looks impressive, the fact is clear that CMHC who the government is purchasing the securities from is 100% crown backed, they are simply pushing around paper on balance sheets. The commercial banks should follow suit and lower there risk models and allow more cash flow into the would-be-homeowners.

The Government collects the funds to purchase the mortgages by issuing bonds with an average rate of return today at 2.7% and will buy the mortgages that should yield a return of 3.78%. It certainly would be nice to have access to the collective clout of the Government, sure would make your returns more impressive!

Here is the article from the Vancouver Sun

Bank Of Canada makes rate cut

In a move that was highly anticipated the Bank Of Canada lowered its key interest rate a quarter of a point today. The bank then hinted at future cuts with the next scheduled meeting in December.

None of the Major Canadian banks have announced any rate changes today, we will keep you posted on what is going on in the consumer market.

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Markets, dollar fall in wake of central bank rate cut

Eric Beauchesne

Canwest News Service

Tuesday, October 21, 2008

OTTAWA – Canada’s benchmark stock index quickly fell more than 200 points and the loonie nosedived more than a cent to the mid-82 cents US level on Tuesday in the wake of a quarter point interest rate cut by the Bank of Canada and its warning that more rate cuts will likely be needed to deal with the global financial crisis and expected recession.

“Three major interrelated developments are having a profound impact on the Canadian economy,” the central bank said in cutting its trendsetting overnight rate to 2.25 per cent. “First, the intensification of the global financial crisis has led to severe strains in financial markets,” it said, adding the need for banks to reduce their loan exposure will restrain growth for some time to come.

“Second, the global economy appears to be heading into a mild recession, led by a U.S. economy already in recession,” it said. “Third, there have been sharp declines in many commodity prices.

The rate cut, however, was not immediately matched by the chartered banks, even though an economist at one of them complained that the central bank should have cut its key rate even deeper, a view also held by labour economists.

“I think they did the right thing on direction but fell short on execution,” said Derek Holt, economist at Scotiabank, which is forecasting the Canadian economy is heading into a recession, something which the central bank stopped short of projecting.

The Bank of Canada remains too optimistic about the Canadian economy, especially in light of its acceptance that the U.S. is in recession and that global economy is heading into a mild one, Holt said. The bank should have cut its key rate by at least half a point, and maybe even three quarters of a point, he suggested, adding that it will have to cut rates again and by half a percentage point before year-end.

United Steelworkers economist Erin Weir went further, saying not only was the rate cut too little but also too late.

However, Weir criticized the chartered banks for their reluctance to match the central bank’s rate cut.

“The real motive for chartered banks to not match the Bank of Canada’s cut may be to widen the spreads between the rate at which they borrow from the Bank of Canada and the rates at which they lend to Canadians,” Weir said. “This is not only unfair to ordinary Canadians, but also severely undermines monetary policy.”

TD Securities analyst Charmaine Buskas said that while the rate cut fell short of what markets expected, she noted that the central bank made it clear there is more rate relief coming.

“It appears as though the bank is more than willing to do what it takes to shore up the economy,” Buskas said, adding that its accompanying statement suggests that it “is taking the situation very seriously” and could cut the target for its trendsetting rate to less than two per cent.

The Bank of Canada applauded actions by G7 countries, including Canada, to stabilize their financial systems, saying they will be key to resuming the flow of credit to support global economic growth, which will benefit Canada’s export-oriented economy which will be hurt by the global slump.

“The marked tightening in Canadian credit conditions in recent weeks will restrain business and housing investment,” it warned, saying it expects growth here to be sluggish until the spring before starting to recover through the rest of next year until it reaches above potential growth by 2010.

As a result of the economic weakness inflation will ease significantly to less than one per cent in mid-2009 before returning to its two per cent target by the end of 2010, the central bank projected.

Underscoring the Bank of Canada’s view that the U.S. is in recession was a report of a further drop in an index of overall economic activity last month deeper into what analysts said was already recession territory.

“The level of the index continues to suggest that a recession has begun,” said TD Securities analysts Ian Pollick, noting the Chicago Fed National Activity Index has been in negative territory for 10 consecutive months.

Meanwhile, a continuing slide in oil prices to less than $72 US a barrel weighed on both the currency and the Toronto Stocks Exchange’s main index, which was also facing profit-taking following a near 700-point gain on Monday.

However, on the bright side there was also further signs of an easing in the global credit crisis with as a key interbank lending rate continuing to ease from its recent peaks.

© Canwest News Service 2008

Interest Rates to Fall? Will the Bank Of Canada cut again? Will the major banks follow?

In todays Vancuover Sun Eric Beauchesne puts forth the idea that even with the plunge in energy prices and a rapidly destabilizing economy the Bank Of Canada will not wait to see the September inflation report issued by Stats Canada and cut rates a further quarter of a percent.

The outlook remains bleak for the economy, which has been hammered by the US Credit Crunch effectively cutting off Banks supply of funds. Later this week we are going to see the release of the key retail and wholesale data for the Canadian markets from August, and the effects of Auto Sales and large ticket items are going to felt.

 

It will be interesting to see if the major Canadian banks lower there key lending rates to match the pending Bank of Canada Rate change. As we saw earlier this month the banks were extremely hesitant to pass along all of the rate reduction to consumers and only did so after the Federal Government committed to purchasing 25 Billion in Mortgage related securities from CMHC and other institutions.

Here is the article from the Vancouver Sun,

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http://www.canada.com/vancouversun/news/business/story.html?id=7d420fda-c86b-4c0a-8a84-d4bc0d4abe24 

“The bottom line? Interest rates are coming down

Inflation not expected to pose an obstacle to cuts

Eric Beauchesne

Canwest News Service

Monday, October 20, 2008

 

With the plunge in energy prices and a rapidly weakening economy, inflation shouldn’t pose any obstacle to further interest-rate cuts this coming week, and for some time to come.

But the Bank of Canada won’t even wait to see the September inflation report, being issued by Statistics Canada, before cutting interest rates further Tuesday, according to analysts who expect another cut of at least a quarter point.

Despite a surprise half-point reduction earlier this month, in coordination with reductions by central banks around the world, markets are pricing in at least another quarter-point reduction Tuesday.

“The global financial crisis has taken its toll on the Canadian economy, justifying the need for more monetary stimulus,” Scotia Capital said Friday, noting that among other things “retail sales are now barely growing.”

The Bank of Canada will issue a brief statement on Tuesday explaining its interest-rate decision, which will be followed by a more detailed explanation and update of its economic forecasts in its Monetary Policy Report on Thursday and at a news conference by bank governor Mark Carney.

“Look for the Monetary Policy to noticeably downgrade the outlook for Canadian economic growth, and clip the inflation projection,” said BMO Capital Markets economist Douglas Porter.

Support for further rate cuts will likely also come from other domestic economic reports, including August wholesale sales today, and retail sales on Wednesday, both of which are expected to have been driven down by both weaker sales, especially for autos, as well as lower energy prices.

The bottom line is interest rates are coming down.

“Inflation concerns have been trumped by the credit crisis and enhanced risks of a global recession,” said CIBC economist Kirshen Rangasamy. “Declining energy prices should keep a lid on headline inflation over the rest of the year, and give the Bank of Canada ample room to provide further stimulus if necessary.”

Don’t bank on a quick retreat in inflation, however.

CIBC projects that prices edged up last month, leaving the inflation rate at 3.4 per cent, down only a notch from 3.5 per cent in August and still well above the Bank of Canada’s two-per-cent target.

“Gasoline prices continued to trend lower in September, albeit at a slower pace,” Rangasamy said, adding that downward pressure on inflation likely came from autos as well. “Those price declines should, however, be balanced out by higher prices for education, food and imported goods.”

Despite a dearth of U.S. economic reports in the coming week, the eyes of most analysts, here and elsewhere, will still be focused on the U.S. looking, hopefully, for signs of at least some stability in volatile and deeply depressed stock markets.

The only major U.S. economic report doesn’t come out until Friday, but it may contain a glimmer of hope, and from a surprising quarter: that country’s devastated housing market, the source of the whole financial and economic mess that the world now finds itself in.

Indications are that there may have been a moderate two-per-cent upturn in sales last month, noted BMO Capital Markets economist Sal Guatieri.

“The good news is that home sales appear to have stabilized this year after sliding deeply the previous two,” Guatieri said.

© The Vancouver Sun 2008

TD Canada Trust raises home equity loan rates

*Update April 23, 2009 Current pricing structure on the HELOC is at Prime + 1.5% = 3.75% on the float portion of the account*

“TORONTO — One of Canada’s biggest mortgage lenders, TD Canada Trust, is increasing the interest rate charged for its home equity line of credit and variable-interest mortgages.

The bank has been charging its prime rate for its Home Equity Lines of Credit — which uses the value of the customer’s home as collateral — but will start charging one percentage point above prime.

TD Canada Trust also is increasing the rates for its open and closed variable-rate mortgages to one percentage point above prime, effective Tuesday.

The prime rate at TD and most major Canadian banks has been 4.75 per cent since April, the last time the Bank of Canada changed its target for its overnight lending rate.

With the change, TD customers who have borrowed under those lines of credits or variable mortgages will be paying an annual rate of 5.75 per cent unless the prime rate changes again.”

Banks around the world, including in Canada, are finding it more expensive to borrow money on wholesale markets, due to the turmoil in the U.S. financial sector.

TD Canada trust has raised the “base” rates for the Varible Rate Mortgage products and the Home Equity Line of Credit. This prime plus pricing is a sharp contrast to what we were offering just a few short months ago. Shortly after the notice we have seen the majority of the other Canadian Banks follow suit.

It is difficult to gauge how long this pricing structure will last, what started out as a mortgage meltdown has blown into a global credit crisis.

David Hudson