The Rev

Sure, the bank risk management dudette told analysts this week, we could withstand a 30% crash in Canadian residential real estate. That would cost the bank only about $100 million in mortgage loan losses. Zzzz.

And that’s what she actually stated (more or less) during the call CIBC had with Bay Streeters in conjunction with releasing its quarterly results (up 9%, to $1.14 billion over three months). As you may have heard, all the big guys are coming in with robust profits despite misery in the energy sector, a contracting economy and serious concerns about a rupture in our housing gasbag.

These bankers have also been seriously stress-testing in anticipation of a US-style Houseageddon, were it to start in Vancouver, spread through BC, decimate Calgary, then infect the Golden Horseshoe before laying siege to the GTA. The answer so far: piece of cake. Staff might be laid off, mortgage operations docked and common share values pared, but no bank would stumble or fall, no matter how bloody housing markets became.

That’s probably a fair assessment. Even in the depths of the 2008-9 credit crisis, with the financial system facing a 1930s-style challenge and bank shares losing about half their value, none of them came remotely close to insolvency, and nobody even cut a dividend.

But that sure doesn’t stop the fear-mongering, disinformation and potty-mouthed hyperbole that seems to be heating up as the real estate market cools down. Once again there are cries that banks are vulnerable, and if one of them rolled over as real estate croaks, your bank accounts, GICs and mutual funds would be wiped out. And it’s all Trudeau’s fault.

Now, this pathetic blog may not be a weed-smoking, tattooed, selfie supporter of T2, but it does like the truth. And right now some people on the fringes of Conservativism need a cuff on the head. Like Charles McVety.

Chuck is an evangelical mail-order reverend, who mattered a lot when Stephen Harper was in power. He was a best bud with the dearly-departed eflin deity F, who served for years as the nation’s finance minister. Besides being an anti-gay crusader, McVety was also enlisted by his prime ministerial friend to assist in my ouster from the Conservative caucus in Ottawa after I irritated the boss with my bogging and bad attitude. In fact McVety mounted a challenge in my own riding to have me unseated me as MP, and used my heretic words to raise millions from fundamentalist supporters who came to believe I had horns and a tail. (The horns part is totally false.)

Anyway, the Rev and I go way back, even debated on TV. I survived. None of this would be relevant to a financial blog about canines and hormones were it not for the fact McVety has now taken up the torch against bank bail-ins – like the other Con gadfly Ezra Levine did several months ago. They’re spreading the myth that T2’s first budget snuck in rules allowing a failing bank to seize depositors’ money and convert it into stock, of dubious value. It’s a harkening back to the fiasco in Cyprus, where major depositors found their assets converted into bank equity when that little country faced a liquidity and confidence crisis.

Anyway, the Rev can explain it all better in this scary vid he’s using to raise more money from the sheeple congregation:

I hate to revisit this issue again, but apparently have to. There will be no confiscation of deposits or accounts if a major ‘systemically-important’ bank fails (which will never happen). Depositors are not bank creditors. Nobody can seize assets to shore up a financial institution. This was not a Liberal idea. It came from the Conservatives, first introduced in F’s 2013 budget.

Let’s revisit what Flaherty said in that document:

“The Government proposes to implement a ‘bail-in’ regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital. This will reduce risks for taxpayers. The Government will consult stakeholders on how best to implement a bail-in regime in Canada. This risk management framework will limit the unfair advantage that could be gained by Canada’s systemically important banks through the mistaken belief by investors and other market participants that these institutions are too big to fail.”

Here’s what the maiden Trudeau budget said:

“To protect Canadian taxpayers in the unlikely event of a large bank failure, the Government is proposing to implement a bail-in regime that would reinforce that bank shareholders and creditors are responsible for the bank’s risks—not taxpayers. This would allow authorities to convert eligible long-term debt of a failing systemically important bank into common shares to recapitalize the bank and allow it to remain open and operating. Such a measure is in line with international efforts to address the potential risks to the financial system and broader economy of institutions perceived as “too-big-to-fail”.

Hear an echo? It’s exactly the same government intention, framed in nearly-identical language. There’s nothing ‘Liberal’ about this. The Trudeau gang just copied it from the Cons – something Tory spear-carriers like McVety and Levine should know (and do).

Now, would a bail-in regime take your money?

Of course not. Here again are the actual proposals, detailed in a Department of Finance paper on the initiative (called the ‘Taxpayer Protection and Bank Recapitalization Regime’).

• The creation of new long-term senior bank debt – so-called ‘bail-in bonds’ which investors would snap up (since they pay a premium for slightly enhanced risk)
• Conversion of those bonds into bank equity under certain strict conditions when bank capital requirements were not met
• Cancellation of some or all pre-existing bank shares in the event of a bail-in occurrence
• Deposits would be excluded from the bail-in regime.
• Systemically-important banks would be subject to higher ‘loss absorbency’ requirements, based on risk assessments.

Naturally, there’ll be no deposit-sucking bail-in. The country’s Big Six banks are rolling in dough, churning out ever-higher profits and constantly trimming risk. The results being announced this week – even as Vancouver real estate self-combusts – proof how ludicrous the notion is.

Still, it’s 2016. There are people who actually believe what they read online or watch on YouTube. Always near at hand, sniffing opportunity, are those using a public pulpit to scare and fleece the masses. I thought Charles McVety could stoop no lower. But then I always underestimated the man.