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ROB Insight is a premium commentary product offering rapid analysis of business and economic news, corporate strategy and policy, published throughout the business day. Visit the ROB Insight homepage for analysis available only to subscribers.

With Toronto-Dominion Bank CEO Ed Clark announcing his impending retirement, it's too early to declare TD's big bold foray into U.S. retail banking a success – returns are still low and it has yet to prove it can increase its relatively weak loan business. But looking ahead, few would doubt the wisdom of diversifying out of Canada, at a time when a long runup in the growth of household debt appears to be peaking.

If a solid Canadian economy and ever-growing borrowing by Canadians has lifted all Big Five banks for years, a receding one will split them into two groups: TD, Bank of Nova Scotia and Bank of Montreal, which are more heavily exposed to growing retail banking operations in the U.S., Latin America and Asia and poised to do better; and Royal Bank of Canada and Canadian Imperial Bank of Canada, which are much more exposed to Canada.

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But among the second tier, CIBC would likely stand alone as the clear underperformer in the Canadian recession scenario. Poor CIBC earned a reputation last decade as the bank most likely to run into sharp objects. Then CEO Gerald McCaughey committed to make it the most risk-averse bank of the Big Five by retreating largely to its home market.

Unfortunately, the low-risk strategy seems destined to put CIBC at the greatest risk among its peers of suffering the worst effects of a drifting Canadian economy, should that happen. Fully 66 per cent of CIBC's estimated earnings for 2014 will come from the Canadian personal and commercial banking sector – the next highest is Royal at 52 per cent, TD and BMO in the low 40s and Scotia at 29 per cent, according to National Bank Financial analyst Peter Routledge. About half of CIBC's total assets are loans to households, compared to about one-third or less for other banks.

The biggest risk is CIBC's credit card portfolio, which stood at $14.8-billion as of Jan. 31. That only amounts to about 6 per cent of the bank's outstanding loan book, but that is much higher than other banks and accounts for more than 15 per cent of its profits, Mr. Routledge estimates. Typical credit card losses in the 3 to 4 per cent range could easily double in bad times, taking a big bite out of profits. Commercial loans would also likely take a relatively bigger hit than other Canadian banks.

Fear not, this wouldn't be a crisis situation: CIBC's earnings growth rate would flag but its capital situation wouldn't be threatened. Even the worst of the Canadian banks is still a solid performer by many standards. The difference is that three of them have figured out strategies to grow beyond Canada and create substantial long-term value by deploying their capital adventurously. RBC won't be far behind. At some point, CIBC will have to find ways to do the same. The head-in-the-sand strategy worked for a while; perhaps a Canadian recession will prompt CIBC to take a second chance at becoming a first-tier bank again.

Sean Silcoff is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Sean on Twitter at @seansilcoff .

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