Remember the 2008 financial crisis – Canadians cannot be complacent about global shocks
But witness the sharp drop in the price of Canadian bank stocks in the wake of Silicon Valley Bank’s collapse.
We had eight consecutive monthly declines in output. Those declines delivered a total output loss of almost 4 per cent in the ensuing recession, just slightly less than the loss in the United States, the epicentre of the financial shock. The well worn adage that “when the U.S. sneezes, Canada catches a cold” was applicable again.The threats to Canadian banking and the economy are far from over. There could be further financial contagion in the United States.
Central banks in many countries, meanwhile, are far from success in their drive to reduce inflation. While the Bank of Canada has signaled a pause in the interest rate hikes, the U.S. Federal Reserve Board has been flagging their intent to drive rates up further. The bank failures may put that on pause, but not likely for long. Recession in one or both countries is a distinct possibility.
Long backing oil and gas firms, Canadian banks must both de-carbonize their portfolios and find ways of better supporting new, clean growth firms and technologies. Can they support, hopefully even lead, the necessary economic transformation without taking on unacceptable risk? The Silicon Valley Bank experience must be studied as a lesson on how not to do this.
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