Why Canadian Banks Survived the Financial Meltdown- Robin Trehan

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Why Canadian Banks Survived the Financial Meltdown- Robin
Trehan

Every where, banks are undergoing extreme financial woes
due to the financial meltdown. It seems like good beginnings don’t always have
good endings, this is especially so for the American banks. Things started
looking really good for the banking system -- real estate was booming and lots
of people were taking out loans and great investment opportunities were
present. Some investors were a bit foolish during these times and are now stuck
in a rough financial situation -- it’s true when they say “a fool and his money
are soon departed”.

Even with all of this going on, it seems quite
astonishing that the Canadian banks have been able to survive the financial
meltdown. How did they do it? Looking into the Canada financial system, we see
that there is less debt there. Homeowner liabilities are 20% in assets. This is
actually close to stable and has been since the late ‘80s. Now, when compared
to the U.S.’s 26% (huge spike occurred during the past decade) asset liability
American homeowners have, Canada seems much more sustainable.

The mortgages in Canada are also more appealing than the
U.S.’s. The subprime mortgage market is only about 1/20 of all the mortgages
that have been taken out. In America, it’s 1/6 mortgages that are subprime --
about a quarter of the mortgages taken out between 2004 and 2006 were in the
subprime category.

A penny saved is a penny earned -- being a smart is one
of the best assets Canadian bankers have. Their banking culture is different
and more prudent than the American banks -- most of the U.S. banks don’t apply
prudent underwriting standards like the Canadian banks do. The standards of the
Canadian banks require continuous income checks, job status verification, and
sales contract requests among other things. A lot of American bankers are quick
to hand out the keys to people who have no income, no job and no assets.

Unlike with the America, there’s no bubble in the
Canadian home market. To give a good idea, the prices for Canadian homes are
about 200% higher than what they were back in ’89. In the U.S. the ratio peaked
at 260% before crashing down to 220%. Canada has a steady rise of prices of
4-5% each year. Last, but not least, there are much fewer foreclosures in the
Canadian real estate market. In the U.S., 4.5% of its mortgages are in 90-day
arrears and in Canada its at a stunning .27%! With all of this in mind, you can
understand why the Canadian banks have been able to avoid the financial crisis.
But this doesn’t have to depress the U.S. banking system because every dark
cloud has a silver lining.

Robin Trehan, is associted with private equity group of
Credit Capital Funding. Also. More information www.creditcapitalfunding.com
and www.businesscreditfunding.com