CANADA’S FINANCE minister Jim Flaherty has said that governments must plan to withdraw support from their banking systems in a choreographed manner so that weaker countries are not disadvantaged.
Mr Flaherty told The Irish Timesthat countries needed to work together to agree "a co-ordinated, staged withdrawal" of government support to banks.
“Certainly we have learned in this credit crisis and the recession that there needs to be a co-ordination of activity because otherwise one country would be disadvantaged vis à vis others and that would not leave mutual confidence in financial systems,” he said in his offices in Ottawa.
A senior finance official with Mr Flaherty’s office said it was too early to withdraw government support but it was not too early to start planning it. He said Ireland’s bank guarantee created distortion in the market and there needed to be mature conversations about a strategy to remove state support.
The International Monetary Fund said in its annual report on the Irish economy last month that the success of the State’s “bad bank”, Nama, would be “the precondition for a safe exit” from the €440 billion bank guarantee scheme.
Canada is the only country in the group of seven largest industrialised nations not to support its banks with guarantees, recapitalisations or the purchases of toxic assets. Only one of Canada’s five largest banks, Royal Bank of Canada (RBC), has posted a quarterly loss this year, the bank’s first such loss since 1993.
Stronger regulation, strict capital requirements, fiscal conservatism and the absence of tax deductible mortgages are among the contributory factors behind the stability of the Canadian banking system.
Canadian banks must by law maintain tier one capital ratios – the level of protective loss-absorbing reserves – of at least 7 per cent, although the ratios of the country’s five largest banks stood at 9.5 per cent at the start of the global financial crisis. This compares with ratios of 8.2 per cent and 7.5 per cent at Bank of Ireland and Allied Irish Banks respectively in 2007.
Gordon Nixon, chief executive of RBC, said: “Irish banks stand out as an example as having way too much leverage in relation to the size of the institutions.”
