OTTAWA—A study released today by the Canadian Centre for Policy Alternatives (CCPA) estimates the previously secret extent of extraordinary support required by Canada’s banks during the financial crisis.
According to the study, by CCPA Senior Economist David Macdonald, support for Canadian banks reached $114 billion at its peak—that’s $3,400 for every man, woman, and child in Canada.
“At some point during the crisis, three of Canada’s banks—CIBC, BMO, and Scotiabank—were completely under water, with government support exceeding the market value of the company,” says Macdonald. “Without government supports to fall back on, Canadian banks would have been in serious trouble.”
Between October 2008 and July 2010, Canada’s largest banks relied heavily on financial aid programs provided by the Bank of Canada, the Canada Mortgage and Housing Corporation (CMHC), and the U.S. Federal Reserve—all at the same time.
Over the entire aid period, Canada’s banks reported $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 received an average raise in total compensation of 19%.
“The federal government claims it was offering the banks ‘liquidity support’ but it looks an awful lot like a bailout to me,” says Macdonald. “Whatever you call it, Canadian government aid for the country’s biggest banks was far more indispensable than the official line would suggest.”
The study estimates the value of government support by combing through data provided by CMHC, the Office of the Superintendent of Financial Institutions and the Bank of Canada, as well as quarterly reports of the banks themselves.
Due to government secrecy, the study raises more questions than it answers. Macdonald calls on the Bank of Canada and CMHC to release the full details of how much support each Canadian bank received, when they received it, and what they put up as collateral.
“A healthy and resilient banking sector cannot operate under the shroud of secrecy. Details of the massive taxpayer support Canadian banks received should be released in the name of transparency and accountability,” says Macdonald. “Financial sector regulation should be strengthened to prevent the need for similar measures in the future.”
The Big Banks’ Big Secret: Estimating Government Support for Canadian Banks During the Financial Crisis is available on the CCPA website: http://policyalternatives.ca
For more information contact Kerri-Anne Finn, CCPA Senior Communications Officer, at 613-563-1341 x306 or [email protected].