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SVB: What would happen if a bank in Canada failed?



Following the collapse of Silicon Valley Bank (SVB), experts say the prospect of a bank failure in Canada remains low and highlight the process by which depositors could get their money back.

Trevor Tombe, a professor of economics at the University of Calgary, said in a phone interview on Tuesday that Canada has several agencies which ensure the nation’s banking sector remains stable. He said the main regulating body is the Office of the Superintendent of Financial Institutions (OSFI), which monitors and audits Canada’s main banks.

Other regulating bodies include the Bank of Canada and the Canada Deposit Insurance Corporation (CDIC), which would take over a failing institution if necessary, Tombe said.

“It’s important to remember there’s a knee-jerk reaction for most Canadians. They look south of the border, and they see something happening and they say ‘it has to happen here as well,’” Laurence Booth, a professor of finance at the University of Toronto, told BNN Bloomberg in a phone interview Wednesday.


In an effort to protect creditors, OSFI announced Wednesday that it is taking over SVB’s Canadian assets indefinitely. The announcement comes after SVB’s collapse, which marked the largest failure of a U.S. lender in a decade.


Tombe said that in Canada, the six largest banks are deemed “systemically important,” which means they would be treated differently than a smaller institution in the event of a potential failure.

“Their [big six banks] operations are critical to not just the banking system, but Canada’s overall economy, [meaning] that they would not be closed. They would just be taken over and their operations would continue. Smaller banks though, they can be closed,” he said.

In the event of a Canadian bank failure, depositors would be reimbursed up to $100,000 per account through an automatic process undertaken by the CDIC, Tombe said.

“If it’s an unregistered account, you’re literally sent a cheque. If it’s something like an RRSP [Registered Retirement Savings Plan], then that takes a little bit longer and they try and move that account to another financial institution,” he said.

The CDIC is a federal Crown corporation that safeguards over $1 trillion in Canadian deposits, according to its website. The regulator said it protects deposits held at member institutions up to a maximum of $100,000 per each issued category.

The CDIC said coverage extends to things like savings and chequing accounts, guaranteed investment certificates (GICs) as well as foreign currency. However, the CDIC said it does not cover things like mutual funds, securities and bonds, exchange traded funds (ETFs) or cryptocurrencies.

“So the deposits that are insured is just your first $100,000, but that’s per account. So if you want more of your deposits insured, then you can open multiple accounts at a bank, for example,” Tombe said.

“So it’s not a limit to you personally, in terms of the total amount that you have at a bank. It’s a limit just on an account-by-account basis.”

Booth said that the current specified limit for CDIC protection is more than adequate for Canada’s smaller banks, but if one of the nation’s big six banks failed then regulators could potentially protect deposits above the $100,000 per account threshold.

”So there’s the law or the regulations and then there’s what happens in a particularly desperate situation,” he said.

Booth said the CDCI, Bank of Canada and OSFI all coordinate with each other. He said with approval from the Bank of Canada, OSFI can lend money to “almost any organization.”

“So what would happen is that if one of the big Canadian banks got into serious trouble, I think there’d be a rescue or significant help for one of the other agencies of the federal government apart from CDIC,” Booth said.

“In all probability, even though the normal amount [is] $100,000, there would be some sort of rescue to make sure that deposits greater than $100,000, were secure,” he said adding that there is uncertainty surrounding how the situation would play out.


According to Tombe, a Canadian bank has not collapsed since 1996 and the prospect of a failure remains extremely low today. He said Canada has a high degree of concentration in its banking system and is vastly different from the U.S.

“And so our larger banks are, I don’t want to say zero risk, but basically as zero risk as you can get to a failure,” Tombe said.

“If it got to the point where there was really serious concerns, then their operations would simply be taken over by the CDIC, they would not be closed because their operations are so critical.”

The prospect of a bank failure in Canada is “extremely unlikely,” Booth said due to the conservative nature of its banks and regulators.

“The big test for the Canadian banks was the financial crisis in the United States in 2008 and 2009,” Booth said.

Amid the financial crisis of 2008, Booth said there were liquidity concerns regarding Canadian banks only because capital markets “suddenly dried up.”

“But there was never any question about the safety of the Canadian banking system. And since then, the banking systems got even more secure, there’s even more requirements to hold liquid reserves and keep capital,” he said.


Shilpa Mishra, a partner and managing director in BDO Canada’s capital advisory practice, said in a phone interview Wednesday there are four main factors that lead to the collapse of SVB which highlight the difference between the U.S. and Canadian banking sectors.

Mishra said a “fundamental mismanagement” occurred at SVB, particularly regarding its interest rate risk management.

“So they [SVB] had deposits and these mortgage-backed securities. As interest rates rose, bond prices fell. Basically, they had losses and they could barely cover their liabilities,” she said.

Another contributing factor to the collapse of SVB was that it lobbied the U.S. government to remove regulations over the previous few years, said Mishra.

“So they weren’t as heavily regulated. They weren’t required to conduct stress testing or review their liquidity coverage ratio,” she said, adding that there was no third-party review of interest rate-related risk.

Additionally, SVB had a very concentrated customer base in the technology industry, Mishra said.


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What every Canadian investor needs to know today – The Globe and Mail




Key indexes in both Canada and the U.S. opened down Friday as concerns about the global banking system continuing to ripple through markets.

At 9:34 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 100.75 points, or 0.52 per cent, at 19,359.17.


In the U.S., the Dow Jones Industrial Average fell 67.03 points, or 0.21 per cent, at the open to 32,038.22. The S&P 500 opened lower by 9.51 points, or 0.24 per cent, at 3,939.21, while the Nasdaq Composite dropped 39.78 points, or 0.34 per cent, to 11,747.62 at the opening bell.

“The new market game is being played between two camps: ‘the financial stress and how the authorities are dealing or promising to deal with potential renewed turmoil’ camp, and ‘the recession worries’ camp,” Swissquote senior analyst Ipek Ozkardeskaya said in an early note.

“While the recession worries are not entirely bad for the stock valuations – at least in the immediate term, as they pull the yields lower, the financial stress is much less welcome, and there is a much stronger consensus among investors that… financial stress is bad.”

Markets drew some support on Thursday from comments by U.S. Treasury Secretary Janet Yellen who said the United States has more tools available to battle contagion in the banking sector if necessary.

“As I have said, we have used important tools to act quickly to prevent contagion. And they are tools we could use again,” Ms. Yellen said in prepared remarks to the U.S. House of Representatives Appropriations subcommittee hearing.

Meanwhile, shares of Deutsche Bank were under pressure after a sharp jump in the cost of insuring against the risk of default again fuelled worries about Europe’s banks. Shares were down more than 10 per cent in morning trading in Europe. U.S.-listed shares were down more than 6 per cent shortly after the start of trading in New York.

In Canada, markets got a much stronger-than-expected reading on retail sales in January. Statistics Canada says sales rose by 1.4 per cent for the month. Economists had been expecting an increase of 0.7 per cent. Statscan says sales were up in seven of nine subsectors, led by motor vehicles and gas stations.

The government agency also said early indications suggest a decline of 0.6 per cent in February. That figure is subject to revision.

On the corporate side, Magnet Forensics Inc. shareholders voted in favour of U.S. private equity firm Thoma Bravo’s $1.8-billion takeover of the cybersecurity company. The Waterloo, Ont.-based technology company announced the approval during a shareholders’ meeting on Thursday afternoon.

Overseas, the pan-European STOXX 600 was down 1.84 per cent by midday with bank stocks sliding. Britain’s FTSE 100 lost 1.80 per cent. Germany’s DAX and France’s CAC 40 slid 2.44 per cent and 2.32 per cent, respectively.

In Asia, Japan’s Nikkei finished down 0.13 per cent. Hong Kong’s Hang Seng lost 0.67 per cent.


Crude prices were weaker but on track for a weekly gain.

The day range on Brent was US$74.60 to US$76.32 in the predawn period. The range on West Texas Intermediate was US$68.63 to US$70.38.

Both benchmarks closed down about 1 per cent yesterday but are still up between 3 per cent and 4 per cent for the week so far, recouping some of the previous week’s losses amid heightened market volatility.

“The bears have been in control as many energy traders remain unconvinced that the demand will be improving enough to bring down stockpiles,” OANDA senior analyst Ed Moya said.

“The key takeaway from the FOMC meeting for energy traders is that the Fed is probably going to send this economy into a recession. China’s reopening story remains subdued and that is keeping oil grounded around the low US$70s.”

Prices saw some downward pressure after U.S. Energy Secretary Jennifer Granholm said refilling the country’s Strategic Petroleum Reserve could take years. The White House said in October it would buy back oil for the SPR when prices were at or below about $67-$72 per barrel.

Ms. Granholm told lawmakers that it would be difficult to take advantage of the low prices this year to add to stockpiles, which are currently at their lowest level since 1983 following sales directed by President Joe Biden last year, Reuters reported.

In other commodities, spot gold was down 0.4 per cent at US$1,986.40 per ounce early Friday morning, after two strongly positive sessions. U.S. gold futures also fell 0.4 per cent to US$1,988.90. Gold topped US$2,000 an ounce earlier this week, hitting its best level in more than a year, on safe-haven demand.

“A run to record territory is not that far away and could happen if financial stability concerns do note ease,” Mr. Moya said.


The Canadian dollar was weaker while its U.S. dollar edged up after touching its lowest level in more than a month during the previous session.

The day range on the loonie was 72.66 US cents to 72.96 US cents early Friday morning. The Canadian dollar is down 0.15 per cent against the greenback over the last five days and off more than 1 per cent for the year so far.

“The CAD is a moderate out-performer on the session, gaining a little ground against the EUR, GBP and AUD among the majors but it really can’t hold a bid against the USD,” Shaun Osborne, chief FX strategist with Scotiabank, said.

On world markets, the U.S. dollar index, which weighs the greenback against a selection of currencies, was up 0.39 per cent at 102.93 in the early premarket period.

The index touched a seven-week low of 101.91 on Thursday but managed to finish the session with a small gain, its first in six trading days, according to figures from Reuters.

Britain’s pound was flat at US$1.2285, having touched a seven-week high of $1.2341 on Thursday in volatile trading. The euro was up 0.03 per cent at US$1.0833, slightly below the seven-week high of US$1.0930 seen on Thursday.

In bonds, the yield on the U.S. 10-year note was lower at 3.343 per cent ahead of the North American opening bell.

More company news

The Globe’s Irene Galea reports Canada’s telecom regulator has asked Rogers Communications Inc. to disclose the details of its network-sharing agreements with Quebecor Inc.’s Videotron as part of its takeover of Shaw Communications Inc., in response to allegations that the agreements violate the Telecommunications Act and could stifle competition through price discrimination. The network-sharing agreements are a key issue with Rogers Communications Inc.’s proposed $20-billion takeover of Shaw Communications Inc.

Shares of Obsidian Energy Ltd fell as much as 4% pre-market on Friday after Alberta’s energy regulator said the Canadian oil and gas producer triggered a series of earthquakes in the province between November and March. The Alberta Energy Regulator’s (AER) environmental protection order against Obsidian came late on Thursday, following a separate study published by Stanford University and University of Alberta that said injection of wastewater from oil sands operations in the area caused one of the strongest earthquakes in the history of the region. –Reuters

Economic news

Euro area manufacturing and services PMIs. UK consumer confidence, retail sales, and PMIs.

830 am ET: Canada retail sales for January.

830 am ET: U.S. durable orders for February. Consensus is for a 1.5% rise.

830 am ET: U.S. global PMIs

With Reuters and The Canadian Press

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Shares in Deutsche Bank drop as global banking worries persist – Al Jazeera English



Tumbling stocks dragged down other major banks across Europe, fuelling fears about a banking sector crisis.

Shares in Deutsche Bank have fallen sharply, dragging down other major European banks and reigniting fears about a widening banking sector crisis.

Germany’s biggest lender dropped more than 14 percent on the Frankfurt Stock Exchange in Friday morning trading before clawing back ground in the afternoon to trade 9.5 percent lower, at 8.43 euros ($9.07) a share.


Tumbling bank stocks dragged down markets across Europe on Friday with Germany’s Commerzbank down 7.5 percent, France’s Societe Generale off 5.9 percent and Austria’s Raiffaisen down 5.9 percent.

Deutsche Bank is one of 30 banks considered globally significant financial institutions, so international rules require it to hold higher levels of capital reserves because its failure could cause widespread losses.

The long-troubled bank has become the focus of investor concerns after the collapse of three regional US lenders and the Swiss government-brokered takeover of Credit Suisse by rival UBS triggered market turmoil this month.

Olaf Scholz
German Chancellor Olaf Scholz says there is ‘no reason to be concerned’ about the health of Deutsche Bank [Johanna Geron/Reuters]

The cost of insuring the bank’s debt against a risk of defaulting, known as credit default swaps, has surged as investors fret about the banking sector’s health.

Rising costs on insuring debt were a prelude to Credit Suisse‘s rescue by UBS. That hastily arranged takeover on Sunday and jitters about Credit Suisse’s long-running troubles led its shares to tank and customers to pull out their money.

Asked whether Deutsche Bank could be the next Credit Suisse, German Chancellor Olaf Scholz said, “There is no reason to be concerned.”

Scholz expressed confidence in Deutsche Bank, saying it had “modernised and organised the way it works. It’s a very profitable bank.”

Speaking in Brussels after a summit of EU leaders, he also said the European banking system was “stable” with strict rules and regulations.

Deutsche Bank said on Friday that it would redeem $1.5bn in tier 2 bonds early. Such a move is normally aimed at boosting confidence in a bank although its shares plunged regardless.

The bank was hit by a string of problems linked to its attempts before the 2008 global financial crisis to compete with Wall Street investment banking giants.

But it launched a major restructuring, which involved thousands of job cuts and a greater focus on Europe, and has returned to financial health. Last year, it booked its highest annual profit since 2007.

European officials said banks in the European Union’s regulatory system, which does not include Credit Suisse, are resilient and have no direct exposure to the failed California-based Silicon Valley Bank and little to Credit Suisse.

Efforts to strengthen banking regulation in recent years “puts us all in a position to say that European banking supervision and the financial system are robust and stable and that we have resilient capitalisation of European banks”, Scholz said.

European leaders, who played down any risk of a possible banking crisis at their summit on Friday, said the financial system is in good shape because they require broad adherence to tougher requirements to keep ready cash on hand to cover deposits.

International negotiators agreed to those rules after the 2008 financial crisis, triggered by the failure of US investment bank Lehman Brothers. US regulators exempted midsized banks, including Silicon Valley Bank, from those safeguards.

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Restaurants and bars brace for biggest alcohol tax jump in 40 years –



Canada’s restaurant industry is bracing for the biggest jump in the country’s alcohol excise duty in more than 40 years, spurring warnings the tax hike could force some bars and restaurants out of business.

“Any increase at this very vulnerable time for our industry is just another blow while we’re down,” said Brenda O’Reilly, the owner of multiple restaurants and a brewery in St. John’s, N.L. 

“It’s like death by a thousand cuts.”


Bar and eatery operators across Canada have endured lockdowns, labour shortages, supply chain mayhem and soaring costs for everything from payroll to cooking oil. Rising inflation has also softened demand as some consumers stay home to save money. 

“Many of us haven’t recovered from the pandemic and now they want to raise this tax,” she said. “It’s hard to get blood out of a turnip. We’ll see more restaurant closures if this goes ahead.”

The federal beverage alcohol duty is set to increase 6.3 per cent on April 1. 

Alcohol excise duties are imposed at the manufacturing level and adjusted annually based on inflation.

While the duty is separate from provincial liquor board fees and sales taxes, it ultimately filters down to higher prices for consumers, said CJ Hélie, the president of Beer Canada.

“It’s imposed at the point of production and paid by the manufacturer, which means it’s built into the price of the product and magnified as it goes through the supply chain from the distributor to the retailer,” he said. 

The automatic annual tax increase is a long-standing irritant for the beverage industry, but was “digestible” when inflation was around two per cent, Hélie said. 

But this year’s adjustment is more than triple the usual increase and should be reconsidered given the state of the industry, he said. 

“When inflation is through the roof, we need to rethink this automatic formula,” Hélie said. “The industry is already in dire straits. Using a rigid formula in a time like this is unacceptable.”

Some brewers may try to absorb the higher cost by delaying investment plans like new hiring but he said there’s only so much they can do before passing the tax hike along. 

“They’ll try to recoup what they can through the wholesale price but it could impact demand and end up costing them in lower sales volumes anyway,” Hélie said.  

Alcohol excise duty rates are adjusted by law on an annual basis to account for inflation, Adrienne Vaupshas, press secretary of Finance Minister Chrystia Freeland, said in an email. 

The increase next month works out to less than a penny on a can of beer, she added. 

On a litre of wine, the excise duty rate is increasing to $0.731 from $0.688, or a little over four cents, according to figures provided by the Canada Revenue Agency. For a 750 ml bottle of wine, the increase would be closer to three cents. 

But industry group Restaurants Canada said it will cost Canada’s food-service industry about $750 million a year, with the average casual dining restaurant expected to pay an extra $30,000 towards alcohol. 

At the retail level, the impact may be more subtle. Though added on top of other price increases, consumers may notice higher prices. 

The Liquor Control Board of Ontario said customers may experience a price increase on select products by the end of April if manufacturers pass along the federal excise tax increase. 

For example, a 750ml bottle of wine or an imported six-pack of beer may increase by five to 10 cents, while a 750ml spirit of 40 per cent alcohol may increase by 70 cents, the LCBO said in an email. 

A spokeswoman for the Nova Scotia Liquor Corp. said beverage alcohol prices are increasing by just over three per cent overall next month. 

But these increases are due to a number of factors, including higher excise taxes and the rising cost of raw goods such as bottles, cans, barley, and labels, NSLC spokeswoman Allison Himmelman said in an email. 

In British Columbia, a spokesperson for the BC Liquor Distribution Branch said it’s not possible to confirm what level of price increase consumers may or may not see.  

“Each liquor supplier will decide whether or not to increase its wholesale price to account for the increase it must pay in excise duty,” Robin Fraser said in an email. 

“Then retailers will make the decision on whether to adjust the prices for consumers for those products,” Fraser said. “It is up to each retailer to determine if, and by how much, to raise its prices.”

Alcohol beverage prices rose 5.7 per cent in February compared with a year before, according to Statistics Canada. 

While that’s only slightly higher than the overall inflation rate of 5.2 per cent last month, the tax hike in April along with other increases could see the alcohol inflation rate rise faster than general inflation later this spring. 

“Our industry is struggling and we can’t absorb more increases,” said Olivier Bourbeau, vice-president of federal affairs with Restaurants Canada. “Restaurant margins are always thin but right now they’re around two to three per cent.”

A recent Restaurants Canada survey found about half of Canadian licensed restaurants are operating just at or below profitability levels.

This is in part because restaurants are absorbing some of the higher costs due to inflation, Bourbeau said. 

Indeed, while grocery prices recorded a 10.6 per cent year-over-year increase in February, restaurant food prices only rose 7.7 per cent, Statistics Canada figures show. 

Also, alcohol beverages purchased from stores rose 6.0 per cent in February, while alcoholic beverages served in licensed establishments increased only 4.3 per cent, the agency said. 

“Restaurants can’t absorb any more price increases,” Bourbeau said. “But if they pass those costs to customers it could hurt their business.” 

“At the end of the day, consumers will only pay so much before they start to cut back.”

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