assuring Canadians that “Canada’s well-regulated banking system is sound and resilient.” Still, to paraphrase a piece of pop chaos theory, when a bank flaps its wings in the U.S.
, it isn’t crazy to wonder if a tornado might be coming to Bay Street.
To find out whether an SVB-style collapse could happen in Canada, the Star spoke on Monday to two leading finance experts at the University of Toronto’s Rotman School of Management. Their answers, and the Star’s questions, have been edited for clarity and space.Chayawat Ornthanalai, associate professor of finance:
“It can happen anywhere. I would never rule out the possibility. But it’s much, much less likely to happen here. And the main reason is because most of the big banks, in Canada and abroad, take in broad deposits while SVB is really concentrated in the technology sector. Essentially, all their clients are in the technology sector and they also have exposure to cryptocurrencies.”“Think about your clients that need to take money out.
The bank run that spurred SVB’s collapse started after the bank sought buyers for a series of long-term bond investments that had fallen in value, thanks to rising interest rates. Is there anything unique to the Canadian system that would protect Canadian banks in that kind of situation?“The thing that was really paramount in the case of SVB is they had a bunch of mortgages. When interest rates rose, the value of those declined quite a bit.
With the rise in interest rates, have you seen anything to suggest there are Canadian banks that could be in trouble?“Well, that depends. The rise in interest rates does impose problems for the banks. But that is the whole idea of having a capital or equity buffer. Hopefully, they’ve bought securities that have helped them offset some of those interest-rate risks. And just looking at what’s happened to the price of the equity within the large banks, you haven’t seen a lot of concern there.
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