Young Economics.

Some thoughts on the banking crisis vs. Canadian institutions

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The Financial Times has an interesting article here.  An excerpt”

“The first question to address is, what are banks for? After the catastrophe of the credit bubble, the suitability of the shareholder value model in banking is questionable. In effect, the banking system has been operating as an off-balance sheet vehicle of the public sector. In the good years the bankers make a fortune through bonuses and stock options. In the ensuing bad years when many years-worth of profits are wiped out, the taxpayer picks up the bill for rescuing banks and other financial institutions that are too big to fail.

The taxpayer is thus an important stake- holder in the banking system. The question is how to establish an accountability framework that reflects this reality. Perhaps it can only be done through tightening regulation and perhaps changing the legal definition of directors’ duties in deposit taking institutions. To have taxpayer representatives on bank boards would risk entr- enching a conflict of interest and undermining a collegial approach to decision making.”

An important question I have yet to see addressed is what this will mean for Canadian banks?  To this point, our system has proven to be relatively sound, and some believe our financial institutions represent an excellent investment opportunity (link).  However, aren’t their growth prospects wrapped up in potential foreign acquisitions (particularly in the US)?  If the States model their banking industry around accountability to their taxpayers, how will foreign institutions fit into the picture?

Canadian direct investment abroad is perenially heavy on financial/insurance investments.    Will these types of opportunities be available in the future, and what sort of impact could this have on our investment income?  It doesn’t seem like a good situation from this Canadians persepctive.


Written by jk

March 4, 2009 at 2:22 am

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