If there's any silver lining for Canadians in the financial calamity unfolding in Greece, it's that this crisis should remind us of how fortunate we are.
Since the global financial meltdown started in 2007, Canadian banks have shone. The country's largest lenders continue to rack up record profits – the Big Six banks made $33-billion combined in 2014 – and in the first few years of the economic recovery, they were praised as a paragon of prudent banking.
If anything, our banks are so solid that they've rocked us into a bit of a slumber. It's hard for many of us to get worked up about what might, or could be, in Greece, because we can't comprehend what it's like to live in a country with a dysfunctional financial system. Greeks are living through a financial five-alarm fire, which sent the S&P/TSX composite index slumping 317 points, but all my touch-football team cared about during Monday's market turmoil was who would grab beers for last night's game.
Perhaps it's time we punt our apathy to the sidelines. In a week when we celebrate Canada's birthday, the Greek crisis should prompt us to give our banking system the praise it deserves. Globally, our lenders don't grab as many headlines as they once did, because rival financial institutions have been getting their houses in order. But they, and the broader system, are just as worthy of praise as they were during the Great Recession.
Maybe it doesn't feel fair to compare our lenders to those in a country such as Greece, which has been in dire straits for years. It's a bit like a team of all-stars playing against amateurs. But even relative to big global giants, such as JPMorgan and Barclays, Canadian lenders still stand out.
Let's not forget that Canadian banks have walked away unscathed from all the embarrassing scandals – including the fixing of the London Interbank Offered Rate (Libor) and the global exchange market – for which regulators slapped hundreds of billions of dollars worth of fines on some of the world's biggest lenders.
Not committing crimes you shouldn't commit in the first place is a low hurdle to clear. But when it comes to profits, Canadian banks are practically fawned over. In a world in which HSBC and Credit Suisse are restructuring their far-flung organizations in hopes of delivering a return on equity, one of the standard measures of profitability across banks, of 10 per cent, Canadian lenders routinely deliver ROEs between 15 per cent and 20 per cent.
And they're well-capitalized, too. Many global lenders, such as Deutsche Bank, have had to raise tens of billions of dollars to shore up their balance sheets in order to meet new regulatory thresholds, but Canada's banks easily achieved a Tier 1 common equity ratio of at least 10 per cent, three percentage points higher than the new global minimum – and their executives barely batted an eye in the process.
As easy as it is to shine the spotlight on the lenders themselves, this success story must be credited to the country's entire banking system, which includes the banking watchdog, the Office of the Superintendent of Financial Institutions.
In the past year, the biggest regulatory change that global banks have had to contend with is the coming implementation of the leverage ratio, which forces lenders to have capital amounting to 3 per cent of their total assets. (Before this, capital ratios gave a weighting to different assets, and supposedly safer assets required less of a cushion.) Canadian banks have barely had to do anything to comply with the new rule because OSFI implemented its own version of the leverage ratio decades ago, known as the asset-to-capital multiple.
Sure, executives get miffed with the watchdogs from time to time, but when CEOs look back – as they did on the five-year anniversary of Lehman Brothers' collapse – they openly praised the country's tight-knit banking community and the frank talks they consistently have with regulators.
By no means are Canada's banks angels; they make more than enough mistakes to fill newspapers. Domestic household debt is at record highs, a worrisome trend, and the Big Six play a major role in easy credit because they are the country's dominant lenders. As they expand beyond their home borders, they are also having hiccups along the way.
Toronto-Dominion Bank paid $53-million (U.S.) in penalties to the U.S. government in 2013 because one of its employees ran a Ponzi scheme in Florida, and last year a Delaware judge forced Royal Bank of Canada to pay $76-million for its advisory role in a contentious takeover.
Beyond the banks, other pillars within the financial system also have flaws. Canada Mortgage and Housing Corp., the country's largest mortgage insurer, was arguably a ticking time bomb until new leadership in the past three years enforced more openness and better controls.
The big worry is that our banks become complacent. After such a stellar run, and after steering clear of so many of the global regulatory probes in the past few years, it can be easy to get cocky. Even though they are on such solid footing, they must be careful not to chase growth in other countries simply because they can.