Canada's Big Six banks deemed too big to fail

Source: The Globe and Mail

Canada’s banking regulator has singled out the country’s six largest banks as being so vital to the nation’s economy that they will have to carry higher capital levels than their peers.

I have mixed feelings about this issue. I will say that it is nice to know that Canada's banking sector has enough forethought to put these rules in place before any major financial crisis (in Canada) takes place. The new rules state that the 6 major banks in Canada will have to retain an extra 1% surcharge to any 'risk-weighted capital' in their portfolio. 1% may not seem like much but we are talking about massive sums of money. The banks won't be too pleased since they would rather take that 1% and invest it instead of having to sit on it.

The other side of me reads the article more like this: 'Canadian taxpayers WILL bail out these banks WHEN they fail'. I'm not happy to know that us taxpayers will have to pay for the fat banker's mistakes. I feel like this is simply a preemptive warning to us Canadians to prepare for the inevitable. By simply stating that these banks are 'too big to fail' runs the risk of these banks getting even larger because investors will think their money is safe regardless of market conditions.

The fear had been that these banks might take more risks based on the presumption that the government would have to bail them out if they ever found themselves on the brink. By forcing large banks to hold more capital and take other steps to plan for a potential crisis, governments are hoping to limit the risks these institutions will take and decrease the amount that taxpayers could possibly be on the hook for.

Notice the last part of that paragraph? Seems pretty clear what will happen if any of these banks go downhill. I sure hope their plan works as well as they hope but bankers always seem to find a way to take advantage of and capitalize on any sort of situation. I'm glad I switched out of major banks years ago!

What do you think ATS? Is this a positive step towards protecting Canada's banking sector or is this a setup to let these banks run amok without concern?

I am starting to think that some people might have been right about Cyprus being a domino effect. Since the whole Cyprus incident there has been more and more talk about bank failures and possible failures. I don't like this situation because too many people lost their retirements and savings already in 2008, and I just don't know how they would handle another crash like that.

reply to post by SpaDe_

I think any future crash will make 2008 look small in comparison. The markets just look so artificially inflated to me. How can we be 'coming out of recession' and the markets be at all time highs? Either a crash is coming soon or the bankers have simply perfected their art of stealing from the middle class... or both.

Canada had a lot more regulations in place that governed it's banks than most other industrialized countries did. Their banks are a lot more solvent..........as long as they followed the rules as they were supposed to do. Pursuit of profits in the world today makes rationality seem unnecessary.

iM SLOWLY INVESTING DOLLARS IN GOLD AND SILVER AND GETTING THE HELL OUT OF MY BOM ACCOUNT(savings)