The Globe and Mail reports in its Tuesday edition that Moody's Investors Service
says it believes the country's
biggest lenders can easily withstand
a U.S.-style mortgage crisis. The Globe's David Berman writes, however, that the credit-rating agency raised concerns
about the big banks' vulnerability
to broader issues, such as
record-high consumer indebtedness
and the knock-on effects
from less-regulated lenders.
In a simulation, Moody's used a 25-per-cent slump in house prices
nationally, along with another
5-per-cent depreciation in
the supercharged markets of Ontario
and British Columbia. Foreclosure and collection
costs were assumed at 10
per cent. Under these conditions,
Moody's estimated total system
losses would be $18-billion, of
which about two-thirds would be
borne by banks. It said bank capital
levels would slump, likely
prompting regulators to require
banks to issue additional shares.
However,
Moody's believes lenders would
recover from losses associated
with a sharp housing downturn in
as little as three months.
Given
its size, Royal Bank of Canada
would suffer the biggest overall
losses. CIBC, though smaller,
would suffer the biggest hit to
its capital levels.
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