A man walks down the street from the King and Bay intersection in the financial district in Toronto
Canada's banking system has stood as a beacon of global stability and trust through some choppy financial seas, buoying confidence across the Americas for a third consecutive quarter, new Thomson Reuters data shows.
The TRust Index report for the third quarter (June-September) of 2014, released on Oct. 20, shows that global confidence in banks remains positive, but at just 0.5 per cent (0 is a neutral score for trust sentiment). The index evaluates business and financial news around the world's top 50 financial institutions to arrive at its sentiment scores.
Trust scores in North America dipped slightly to 4 per cent from 5 per cent the prior quarter, but the scores were kept firmly in positive territory with the help of the top 10 Canadian banks, which ended September with a 19-per-cent trust sentiment score.
Credit goes to the country's prudent policies, tight regulation and well-capitalized banks, said Mark Schlageter, managing director for financial and risk for the Americas at Reuters.
"If you think about the banking crisis as an earthquake, what the Canadian system had was really the most resilient architecture and infrastructure," Schlageter said. "Even though the tremors of the financial crisis negatively affected banks on the same continent, the way Canadian banks set up their policies in regard to risk made them much more sturdy than anything else."
Schlageter said Canadian banks also performed more stress testing than their U.S. counterparts.
"If there were red flags that showed up, they dealt with them in an extremely proactive manner," he said, adding that business expansion plans were also generally cautious, wisely focusing on the wealth management area rather than getting into riskier derivatives or bundled securities.
The World Economic Forum has, since 2007, recognized Canada's banks as the most sound in the world. Predictability has been a major strength for Canadian financial institutions.
"If you look at where the TRust Index has declined or been hit, it really has to do with parts of the industry not doing what they said they were going to do," Schlageter said. "The Canadian banks said 'this is our playbook, we're sticking with it.' It wasn't flashy. People were looking for stability, and that led to trust."
The high confidence scores for Canada in Q3 were hardly a surprise to the Canadian Bankers Association.
In September, the association's own polling found 81 per cent of clients had a favourable impression of banks in Canada. That figure rose to 90 per cent when people were asked about their feelings about their own bank.
"Banks are prudent lenders, and Canadians are prudent borrowers," CBA spokeswoman Maura Drew-Lytle said, noting that no Canadian banks needed bailouts during the 2008 global financial crisis.
Banks were able to continue to raise funds on capital markets and lend to businesses, thereby fuelling economic growth.
"Canadian banks were, and remain, very well capitalized above international standards," she added. "The proof is in the hard stats, when you look at mortgages and arrears, when you look at how well they've performed, and they're profitable," she said.
Trust sentiment among the top financial institutions in Canada peaked at 34 per cent in March of this year, compared with 1.28 per cent for the top 50 global financial institutions during the same period.
Scoring for the TRust Index ranges from a possible low of -100 per cent to a high of 100 per cent, with 0 indicating neutral sentiment.
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