Canada’s Secret Bank Bailout

The conventional narrative about the performance Canada’s big banks during the financial crisis goes as follows: while American banks bet heavily on sub-prime real estate and had extensive shadow bank holdings, Canadian banks did not.

However, the details of exactly how much each Canadian bank received, when they received it, and what they put up as collateral, has remained locked away at CMHC and the Bank of Canada.  Not even Access to Information requests have been able to free this information.

Today, the CCPA released my report, The Big Banks’ Big Secret, which provides the first public estimates of the emergency funds taken by Canadian banks. The report bases its estimates on publicly available data from CMHC, the Office of the Superintendent of Financial Institutions, US Federal Reserve, the Bank of Canada, as well as quarterly reports from the banks themselves.

In this study, I estimate that—at their neediest—Canada’s banks had received $114 billion in support, a figure equal to 7% of the size of Canada’s economy in 2009.

This is equivalent to $3,400 for every man, woman and child in Canada.

It is almost 10 times more than the auto bailout, for which Canadians put up $14 billion and for which the loan portion has been repaid.

During the financial crisis, Canadian banks accessed three separate programs from both the Canadian and U.S. governments. Canadian banks received $33 billion dollars (converted to $CDN) through the U.S. Federal Reserve programs. At the same time, they also accessed $41 billion at the peak of the crisis through a nearly identical Bank of Canada loan program. Finally, they received $69 billion selling mortgages to CMHC for cash. These peaks occurred at different times.

Canada’s Big 5 banks drew on government support programs for an extended period, from October 2008 through June 2010.  In other words, Canadian banks continued to rely on government supports for one and a half years, well after the financial crisis had subsided.

The largest recipients of aid were Scotiabank, Royal Bank and TD Bank. They received an estimated $25-26 billion at their peak. CIBC received somewhat less money, an estimated $21 billion at peak. BMO received an estimated $17 billion. Most of these peaks, except for TD, occurred in the early months of 2009. TD peaked much later in September 2009. (see charts below)

The banks are very different sizes in terms of market capitalization. Royal is the biggest and BMO is about a third of the size of Royal, so I’ve adjusted the figures for the size of the banks.

On the relative side, three of Canada’s biggest banks, Scotiabank, Bank of Montreal and CIBC, received estimated peak support that at some point was equal or greater than the value of the company itself.  That is to say that at some point during the financial crisis, it would have cost less money for the Canadian and U.S. governments to have bought every single share in these companies than to provide them with support. (see charts below)

CIBC in particular received estimated aid worth at peak 1.5 times the value of the company, it spent the better part of the first three months of 2009 underwater.

The federal government claims it was offering the banks ‘liquidity support’, but it looks an awful lot like a bailout to me. Whatever you call it, government aid for the country’s biggest banks was far more substantial than the official line would suggest.

It is worth noting: over the entire aid period, Canada’s banks remained profitable, reporting $27 billion in total profits between them, and the CEOs of each of the big banks were among the highest paid Canadian CEOs. Between 2008 and 2009, each bank CEO even received an average raise of 19% in total compensation.

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