Canada’s big banks are ready for any downturn

Article Excerpt

Slowing growth for Canadian home prices and the economy have spurred concerns about future prospects for the big banks. Steve Eisman, who made millions from short positions he held at the time of the 2008 U.S. housing crash, is among today’s loudest critics. Eisman argues that Canadian banks will be forced to make bigger provisions for potential losses on their residential mortgages if home prices and economic growth further slow. He argues that provisions rising to more “normal” levels will hurt the profits of Canadian banks and force them to raise more capital. He also argues that Canadian banks are expensive when compared to banks in other major countries. There is little doubt that the housing market in big cities like Vancouver and Toronto is increasingly volatile and that some banks carry low provisions against losses on their home loan books. However, the big Canadian banks have government-backed insurance on almost a third of their residential loans. In addition, the average residential…