A new report released by CCPA says that Canada is not immune to the banking problems we see abroad, and cautions that like all banks worldwide, Canadian banks are structurally vulnerable to instability.
The report, No More Swimming Naked: The Need for Modesty in Canadian Banking, examines how banks work, why they are inherently prone to instability, and how banking crises spread—even to banks and banking systems that appear to be stable.
According to the report, overconfidence is part of the problem. Complacency tends to encourage risk-taking among banks, while it deters Canadians from asking tough questions about banking. Yet this overconfidence ignores the fact that banking problems are often not apparent until systemic instability is growing.
The report cautions that current regulations have not eliminated these problems, and since governments have no alternative but to support large banks when systemic stability is threatened, this additional security creates a perverse incentive for banks to increase their appetite for risk.
Click here to read the full report.