Sunday, August 23, 2009

Another bank bites the dust

Another bank failed last night in the States -- Austin based Guaranty. It was seized by the FDIC and sold to a Spanish based bank with 600 branches in the States. The feds have protected the depositors again, like they're supposed to, but the Treasury is going to lose $3 billion on the transaction. That makes the total number of failures this year 81. And we're still in August.

I continue to marvel not only at the record number of bank failures in the States, but the almost complete complacency of Canadians who think that because our institutions are inherently more conservative in lending policies (as well as required to have a greater amount of assets in relation to liabilities) that a major failure couldn't happen here. But I am convinced that, while the Big Six and the Desjardins Credit Union are in no danger of imminent collapse, a smaller bank with broad reach could fail and cause shockwaves across the country. At a time when we're in negative inflation, a massive deficit (by our standards) and an economy that's just barely starting to turn around, that's the last thing we need right now.

Like the States, we do have deposit insurance but it can only take so much strain. On the other hand, we should match the federal offer in the US and increase the limit to $250k. This might stem the flight of capital to the States.

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1 comment:

Toronto Real Estate said...

Well to consider that no banks in Canada have "bitten the dust" there is a good chance we'll make it out of this crisis without any bank problems like the US banks have. Actually I am a bit proud of Canada's banks of how they handled this situation and made the right choices. Of course some of the precautions they took are a bit harsh but times are rough, we'll just have to deal with it.

Take care, Elli