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Boring and safe – but not as safe as they seem. Politicians and regulators would love to inhabit a world where banks take deposits and lend locally, and touch none of the highly leveraged, high-yield (if ultimately worthless) stuff that trashed the balance sheets of U.S. and European banks. But can a new world of dull, heavily capitalized, uber-regulated lenders offer the services clients want, or the returns investors seek?

Bankers in Australia, Canada and Sweden seem to think so. Not for their conservative lenders the fare that sank Lehman Brothers. Banks in Australia, discouraged from overseas expansion, ply their trade in a hermetically sealed market that is largely sheltered from external shocks. Returns on equity in the mid-to-high teens (Commonwealth Bank of Australia leads on about 18 per cent) look handsome versus even strong European or U.S. banks. But they are not cheap: CBA trades at 2.4 times book value. Less assured performer National Australia Bank is on a respectable 1.6 times. For all their apparent conservatism, a burst property bubble is a real (and highly concentrated) threat domestically.

Canada's banks were largely unscathed by the crisis. With most returns on equity in the high teens, and Canadian Imperial Bank of Commerce and Royal Bank of Canada trading at about 2.2 times book, they look fully valued. But high personal debt levels and property values have set alarm bells ringing in Ottawa.

Sweden boasts one of the toughest European regulatory regimes. It is home to Svenska Handelsbanken, the sort of bank regulators love: loan decisions taken in-branch, no bonuses paid, and no sales targets. An ROE of 14 per cent is priced in at 1.5 times book. Yet Sweden's banks were not always as safe as Volvos: They went to the brink in the 1990s property crisis. No wonder Swedish regulators have called for heftier risk weights on home loans.

No bank in any of the three jurisdictions is risk free. But there is something to be said for banks whose regulators are attuned to risks – and tackle them head on.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:15pm EDT.

SymbolName% changeLast
RY-N
Royal Bank of Canada
+0.48%100.88
RY-T
Royal Bank of Canada
+0.29%136.62

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