Friday, 5 July 2013

TBTF (Too big to fail)

An interesting analysis of the Canadian banking system from FT Alphaville, following former Canadian Central Banker Mark Carney starting as head of the Bank of England, with a useful comparison to Australia.

Australia and Canada are very similar economies and jurisdictions - English heritage, resource and commodity exporters to the major economies of China and the USA and structural booms remaining in place (barely) with suggestions of currently overvalued property markets.

On the banking side both have conservative sectors with several (four or five) major banks at the pillar.  Interestingly the FT hailed one of the strengths of Canadian regulators recently was that they stopped the banks growing too big during, blocking earlier mergers amongst the top pillar banks.  A couple of questions:

i) while they look in good shape now (helpful for looking at Mark Carney today) will this hold into the future?  If not will Australian banks follow down a similar path? (hard to imagine given they are rated a world leaders at the moment on some metrics)

ii) in Australia it could be argued that one bank, CBA succumbed to merger fever when it acquired ailing BankWest, as CBA now has absorbed the loan book and swollen its income to be the leader of the pack of Aussie banks.  Might CBA now be too big to fail?  Certainly signs from the recent private wealth adviser frauds at the CBA aren't a good sign.  

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