Large Canadian Banks Very Unlikely to Need Bail-Outs

Unlike Americans, Canadians have always been required to qualify with the bank or other lender before obtaining a mortgage. The TD Bank’s chief economist Don Drummond reports 4% of Canadian mortgages are subprime, whereas 40% of U.S. mortgages are subprime. Hence, most Canadians are capable of repaying their mortgage debt, and are ten times less likely to default on their mortgages than Americans. Large Canadian banks are very unlikely to close or require bail-outs as a result of the U.S. banking crisis.

Deposits and GICs in Canadian banks up to $100,000 are covered by the federal Canada Deposit Insurance Corp. The Canadian Investor Protection Fund and the Mutual Fund Dealers Association Investor Protection Corp. protect up to $1 million of mutual fund investments. The Toronto Stock Exchange rebounded today in recognition of these reassuring facts. Canadian investors with government bonds, utility stocks, and cash in their portfolios are largely unaffected by the U.S. mortgage crisis.

Canada Savings Bonds will probably increase in popularity, even though their return on investment is only 2.75% for Year 1.
The U.S. mortgage crisis will affect Canadians not by the loss of their homes, but by tightening their credit. It will no longer be possible to just increase the size of your mortgage at will, as a cheaper alternative to credit cards.

Boomers who counted on selling the family home and moving to a mortgage-free, smaller dwelling with a comfortable nest egg from the profits need to rethink their plans. Younger people with steady income who were unable to find an affordable home may finally gain access to the coveted Toronto housing market if prices drop.

Yesterday, the U.S. Congress found the $700 billion bank bail-out authored by Paulson and Bernanke too left wing. Although Americans now mistrust bankers and investment brokers, they are even more reluctant to have George Bush as their landlord, even if their monthly mortgage payments are smaller. Paulson and Bernanke are expected to revise their next proposal to include private mortgage insurance, which should make it more palatable to the American right and advocates of a free market economy.