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Economy Lab: Canadian banks now at door of exclusive club

Bank towers in the night sky at the heart of Toronto’s financial district.

Fred Lum/Fred Lum/The Globe and Mail

It doesn't take a bunch of international watchdogs to remind us that a failure of any of Canada's big banks would wreak havoc on the domestic economy. Which is why no Canadian government could afford to let that happen.

But what is less well known is that our top banks are rising up the global ladder as well, thanks partly to their enforced prudence, which enabled them to steer clear of the worst of the global financial hurricanes, their domestic dominance and their ability to exploit the opportunities outside Canada stemming from the decline of U.S. and other competitors.

If the current trend continues, Royal Bank of Canada and Toronto-Dominion Bank could find themselves included in the famous list of 29 global heavyweights faced with keeping bigger capital cushions against their assets – in the regulators' hope the extra costs of being so big will persuade them to exercise greater self-control, keep their growth manageable and, with any luck, prevent a repeat of the Great Financial Meltdown of 2008.

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The group dealing with "too big to fail" rules is  the Basel Committee on Banking Supervision, which last year announced new capital rules for 29 of the world's most systemically important banks, including Deutsche Bank, HSBC, Bank of America, JP Morgan and Citigroup. Each will have to boost capital reserves by as much as 2.5 percentage points above the level set for other banks.

Royal Bank of Canada now sits 33rd among the world's top 50 banks, when measured by total assets (converted to U.S. dollars) at the end of fiscal 2011. That's a rise of two rungs from the previous year. Toronto-Dominion Bank ranks 36th, also up two spots. Bank of Nova Scotia moved up a notch to 42nd and Bank of Montreal was 48th, after failing to crack the 50 club in 2010.

But they are still dwarfed by the world leaders on the annual list compiled by Global Finance magazine using rating-agency numbers.

RBC's assets totalled $797.26-billion, up from $713.65-billion. No. 1 Deutsche Bank is 3.5 times larger with just under $2.8-trillion ($2.55-trillion a year earlier). BNP Paribas slipped to third from first with $2.54-trillion. HSBC ($2.56-trillion) moved up one rung to second. The leading U.S. player is JP Morgan Chase, in ninth spot with $2.27-trillion, down from eighth the previous year, when it was actually smaller ($2.12-trillion)

The full list, being published in the magazine's October issue, is available at gfmag.com.

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