Global Banking - Regulator Envy.

(cross posted at kickin it with cg and motley moose)

Amid a global economic meltdown - Canada - with its highly regulated banking system has become the envy of the world.  In a survey by the World Economic Forum in October, with the financial crisis and bank failures that have shaken world markets - Canada was voted to have to world's soundest banking system followed by Sweden, Luxembourg and Australia.

Britain, which once ranked in the top five, has slipped to 44th place behind El Salvador and Peru, after a 50 billion pound ($86.5 billion) pledge this week by the government to bolster bank balance sheets.  The United States, where some of Wall Street's biggest financial names have collapsed in the fall, rated only 40, just behind Germany at 39, and smaller states such as Barbados, Estonia and even Namibia, in southern Africa.

The World Economic Forum's Global Competitiveness Report based its findings on opinions of executives, and handed banks a score between 1.0 (insolvent and possibly requiring a government bailout) and 7.0 (healthy, with sound balance sheets).  Canadian banks received 6.8, just ahead of Sweden (6.7), Luxembourg (6.7), Australia (6.7) and Denmark (6.7).  UK banks collectively scored 6.0, narrowly behind the United States, Germany and Botswana, all with 6.1. France, in 19th place, scored 6.5 for soundness, while Switzerland's banking system scored the same in 16th place, as did Singapore (13th).

The Globe and Mail's Report on Business created a neat little chart that summarizes how some banks around the world are doing:  

Ranked tops in the world by the World Economic Forum for soundness of banks. Canada's big five lenders all reported healthy profits in their most recent quarter, generally beating analysts' expectations. Tightly regulated, with cash-spewing retail banks that can offset losses in other areas of the business.

United States
There are 252 problem banks being tracked by the government's bank insurance program. In 2008, 25 banks failed, including household names like Washington Mutual. The government has rolled out numerous programs and spent at least $1-trillion (U.S.) in a bid to prop up the financial system, but there are no sure signs that the bailouts are working. The Federal Deposit Insurance Co. is now on track to seize 100 failed banks in 2009.

The big economies in South America have had little trouble with bank failures resulting from stumbles on risky assets such as subprime mortgages. Still, they won't be immune to rising defaults from slowing economies, which will be a test of how far financial regulation and bank management have come in recent years.  

The banking system of this tiny island nation -- which boasts a population half the size of Winnipeg -- represents probably the most spectacular rise and fall of the global financial meltdown. In 2003, Iceland's three main banks had just a few billion dollars of assets, but by 2006 this hit $140-billion (U.S.). Today, all three have failed and been nationalized in a bailout that's cost about $330,000 per citizen, leading to the collapse of the country's currency and economy.  

Sweden faced a banking crisis in the 1990s, and was forced to remake its financial sector. This time around, while one bank has failed because of toxic assets, the country has mostly dodged the problems and Sweden's banking sector was ranked second only to Canada's for stability by the World Economic Forum. Exposure at some big banks to Eastern Europe could lead to loan losses.

The British government has been forced to bail out big lenders such as Lloyds Banking Group, Northern Rock Plc and Royal Bank of Scotland, which have been crippled by forays into risky mortgage products before the property market in the UK and in the U.S. fell apart.

The country's reputation as the home of the quiet, prudent banker is in shambles after gambles by Swiss giants UBS AG and Credit Suisse led to massive losses totalling more than $65-billion (U.S.). The government is now looking to write new rules to keep the financial sector out of trouble.

Austria has historically been the bridge between Western Europe and Eastern Europe. In recent years some of its largest lenders focused on expansion in such countries as Czech Republic, Romania and the Ukraine. Lending to the Central and Eastern European region amounts to almost 70 per cent of Austria's gross domestic product, according to Moody's. That was great when those countries were booming, but Eastern Europe is hurting badly and now many loans are likely to go bad.

Spain's banking system has held up better than most with banks reporting gains in profit in large part because of strict regulatation when it comes to high risk assets, a legacy of a banking crisis in the 1970s. As a result, big Spanish banks like Banco Santander focus mostly on low-risk retail banking. Still, there are signs it may not last. The country's swooning property market could lead to loan defaults, and the government and some bank executives warn that the domestic banking sector may have to be restructured should the global financial crisis deepen.

Namibia has the highest-ranked banking system in Africa for stability, well ahead of Spain, the U.S. and Britain. According to the International Monetary Fund, the country's banks entered the financial crisis very profitable and well capitalized. And while the country is being buffeted by the global troubles, the resource-based economy is still expected to grow 1 per cent this year, according to Namibia's central bank.

The Russian government has already invested about $11-billion to try to aid banks, and is looking at another $55-billion stimulus package to restart the economy and support the country's ailing banking system. Lenders are suffering from a fast downturn in the oil-powered economy of Russia.  

China's big banks have avoided troubles with subprime and other toxic assets, and may benefit as the government unveils a big stimulus package designed to keep the country's economy growing quickly. If that doesn't work, though, expect the banks to face bigger loan losses.

Japan's response to the banking bust of the 1990s was a `What not to do' lesson. The country put off dealing with bad loans and propped up bad banks for too long. Just as the country finally started to take big steps to fix the problem, this financial crisis cropped up. So far, Japanese banks have avoided the worst of it, signalling perhaps they've learned from experience.  

Ranked fourth by the World Economic Forum for soundness of banks, Australia's system shares many attributes with Canada's. It's centralized, with a few big players that are making money. The big problem for Australia is an economic one: its banks may not be big enough to take up the slack as global lenders cut back on lending, leaving the country's borrowers in the lurch.  

Maybe government regulation is the way to go - don't you think?

Tags: Austria, banking, Canada, china, government, Iceland, Japan, Namibia, regulation, russia, spain, sweden, Switzerland, United States (all tags)



Re: Global Banking - Regulator Envy.

iceland is a perfect lesson in what not to do - the question is will the rest of the world learn from their lesson?

by canadian gal 2009-03-25 05:22PM | 0 recs
Re: Global Banking - Regulator Envy.

Could we even do 6 times the GDP in debt?  Are there 84 trillion dollars in the world?

Things are bad but could always be worse.

PS Is Winnipeg still solvent or did the recession hit beer and jelly donuts as well? :)

by AZphilosopher 2009-03-25 11:43PM | 0 recs
Re: Global Banking - Regulator Envy.

yeah - iceland's story is pretty stunning.

by canadian gal 2009-03-26 04:27AM | 0 recs
Re: Global Banking - Regulator Envy.

What is valuable to sophisticated market actors is not so much a tightly-regulated market as it is the appearance of a tightly-regulated market.

Back before the financial blowup, Wall Street was giving an awful lot of money to the Democrats this cycle.  Part of it was simply wanting to be on the good side of the likely winners, of course.  But another part of it was that things were starting to seem more than a little out of control, and investors were starting to feel unsafe with the Republican message of "leave the free market alone."  But it's not that Wall Street was hoping to be more tightly regulated - they just felt the Democrats would make the sort of noises about regulation that would result in greater investor confidence.

When you put your money in a bank, or you invest it in the market, one of the most critical things you look for is the sense that somewhere out there, a competent regulator is making sure that you don't get ripped off.  But whether the regulator actually exists is beside the point.  You invest because of the sense of confidence.

Of course, in the long run, the difference between phantom regulation and no regulation tends to disappear because stuff will happen, markets will start breaking down, and people will come to see that the emperor has no clothes.  But so few people in the financial sector stop to think about the long run in any event.

by Steve M 2009-03-25 07:51PM | 0 recs
Re: Global Banking - Regulator Envy.

After reading Matt Taibi's maddening and eye-opening Rolling Stone article, BRING ON THE REGULATORS.

by Todd Beeton 2009-03-26 01:12AM | 0 recs
wow - crazy article.

best part:

We're fools, protagonists in a kind of gruesome comedy about the marriage of greed and stupidity. And the worst part about it is that we're still in denial -- we still think this is some kind of unfortunate accident, not something that was created by the group of psychopaths on Wall Street whom we allowed to gang-rape the American Dream.

the thing that amazes me is how some of these same goons are still championing deregulation...

by canadian gal 2009-03-26 04:26AM | 0 recs
Re: wow - crazy article.

and how some of these goons are in the administration.

by Todd Beeton 2009-03-26 10:07AM | 0 recs
If you'd really like to freak out... how Citi and B of A are already gaming the latest bailout effort. They're actually buying recycled toxic crap this week with our latest bailout subsidies!


How much longer can we continue to be ambivalent about this gross waste of taxpayer trillions?

I blogged about this a few days ago (i.e.: "The devil's in the details of the deal with the devils," and now it's in the NY Post! All about "double-dipping.")

by bobswern 2009-03-26 10:33AM | 0 recs
Re: Global Banking - Regulator Envy.

The answer - as it most often is - is simple....

When you elect a party that BELIEVES that GOVERNMENT IS the PROBLEM - you are GUARANTEED to have Government that DOES NOT WORK - it is against the Republican's religion for Government to be a contributor to ANY SOLUTION in society.

Here in Canada we must ensure we don't make the same mistake - and we must defeat the Tories in the next election before they can form a majority Government and really screw us up.

by 1Mylegacy 2009-03-28 12:06PM | 0 recs


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