Canada’s banks, ranked the soundest on the planet by the World Economic Forum, aren’t immune to collapses triggered by falling housing prices
Contents contributed and discussions participated by Kevin Mao
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Canadian banks not immune to housing bubble: OSFI official | Mortgages | Personal Finan... - 0 views
business.financialpost.com/...o-housing-bubble-osfi-official
canadian banks housing bubble mortgages finance canada
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Previous failures of Canadian financial institutions were due to bad real estate lending and sharp falls in housing prices, and these can happen again
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“Just because nothing happened in Canada in 2008 (a U.S.-centered crisis), does not mean that Canada is not vulnerable to a housing correction now.”
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Finance Minister Jim Flaherty has tightened mortgage rules three times and put the federal housing agency’s books under regulator oversight
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Bank of Canada Governor Mark Carney has repeatedly warned household debt is the economy’s biggest domestic risk.
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“The market may break because the fundamentals are not sound (i.e. overvaluation of homes), not because of OSFI guidance,” Melessanakis wrote in response.
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Canadian existing home sales rose 0.8% in April from the previous month and 11.5% from a year earlier
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Flaherty reduced the amortization period on mortgages backed by the government to 30 years from 35, the third time since 2008 he has tightened rules for home loans
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Flaherty introduced legislation April 26 that includes measures to strengthen oversight of Canada Mortgage & Housing Corp.
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The law allows OSFI to review CMHC’s books at least once a year, and prohibits banks from using insured mortgages to back covered bonds,
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Canadian banks should not be “lulled into a false sense of security” by steps policy makers are taking to prevent another financial crisis
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in some places like Vancouver, maybe Toronto, obviously you’re going to have greater risk there of price volatility,”
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last financial institution failure in Canada occurred in 1996, when Security Home Mortgage Corp. collapsed
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Eighteen financial institutions failed in the 1990s, including Confederation Life Insurance Co., which had $19.2-billion in assets at the end of 1993. There were 23 failures in the 1980s, including Northland Bank, which had $1-billion in assets
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Are low interest rates causing low savings rates? | Fox Business - 0 views
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recent study found that nearly half of American workers are not contributing to any form of retirement plan.
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People who fail to save money will pay for their short-sightedness in the future, but the decline of savings can also be seen as a logical response to a low-interest-rate environment
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average personal savings rate in the U.S. slipped to 3.9 percent in the first quarter of 2012 -- the lowest level in over four years
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Bond yields are not much higher, and stocks haven't been very rewarding so far in the 21st century either
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With interest rates running well below the rate of inflation, money in a savings account or other deposit vehicle is actually losing purchasing power with each passing day
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However, getting the most for your money is only one consideration. Having resources to support your retirement is also an important function of saving, and in this respect people with low savings rates are not behaving rationally.
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while low interest rates may seem to discourage saving money, they actually make it more imperative.
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other important point of this context is that outside of the government, most people no longer have an employer pension plan to fall back on.
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shift from defined benefit to defined contribution retirement plans put the responsibility for saving solely on the employees
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by choosing more immediate consumption over saving for retirement, people are supporting their current lifestyles at the expense of the future.
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Banking rules may encourage riskier trading, warns ratings agency | Business | The Guar... - 0 views
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agency also warned that borrowing costs for customers could rise as banks try to maintain their profitability
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might even be a shift to the capital markets to raise funds and banks could move into the less regulated areas of finance, known as "shadow banking"
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Banks need to meet the new capital requirements, known as Basel III and being implemented as a result of the 2008 banking crisis, by the end of 2018,
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29 banks will in total need to find $566bn on the assumption that these crucial banks need a 10% capital cushion
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The impact of holding extra capital – about 23% more than their current holding of $2.5tn – could reduce returns on equity to 8.5% from the 10.8% average of the 29 banks during the period 2005-2011
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JP Morgan (JPM) and Systemic Risk - 0 views
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one likely scenario ([1], [2]) involves derivatives constructed from the riskier components of some European corporate bonds.
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recent paper by Stanford Professor Darrell Duffie highlights an unresolved weakness in the U.S. financial system
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Each day something like $100 billion in such short-term lending is intermediated by two clearing banks
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Duffie believes the system is inherently unstable, as dealer banks depend crucially on the ability and willingness of the clearing banks to provide short-term financing each new day
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Here is Duffie’s recommendation for how to make the tri-party clearing system more stable: Given the systemic importance of tri-party clearing agents, and given their high fixed costs and additional economies of scale, tri-party repo clearing services for U.S. dealers and cash investors should probably operate through a dedicated regulated utility. Although this would likely increase operating costs for market participants, it would enable investment in more advanced clearing technology and financial expertise, allowing greater resilience of the tri-party repo market in the face of financial shocks such as the default of a major dealer. The moral hazard associated with lending of last resort to a dedicated utility is much reduced relative to the case of a financial institution with a wide scope of risk-taking activities.
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this week’s news should remind us that more needs to be done to ensure financial stability and that the incentives of private participants align with the public’s best interests
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BofA to try converting foreclosures into rentals - Los Angeles Times - 1 views
articles.latimes.com/...la-fi-home-rental-20120324
foreclosures rentals Bank of America banking pilot project
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Bank of America Corp. has tentatively joined a nascent housing industry movement in which homes in or near foreclosure are sold to investors as rental properties.
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often would be better for homeowners, communities and the banks themselves to keep troubled borrowers on as renters rather than kick them out
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whether getting a loan off its books with a quick sale at a deep discount is a better deal financially than the foreclosure process,
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TwinRock Partners, a private Newport Beach firm, recently told potential investors that more than 100 homes it has acquired and rented out over the last two years have produced annualized returns of 8.7%, with the potential for big resale profits if housing prices recover
http://www.investopedia.com/terms/s/shadow-banking-system.asp
2. The amount of debt used to finance a firm's assets. A firm with significantly more debt than equity is considered to be highly leveraged.
Leverage is most commonly used in real estate transactions through the use of mortgages to purchase a home.
Leverage helps both the investor and the firm to invest or operate. However, it comes with greater risk. If an investor uses leverage to make an investment and the investment moves against the investor, his or her loss is much greater than it would've been if the investment had not been leveraged - leverage magnifies both gains and losses. In the business world, a company can use leverage to try to generate shareholder wealth, but if it fails to do so, the interest expense and credit risk of default destroys shareholder value."
http://www.investopedia.com/terms/l/leverage.asp#axzz1vAKg26eK
Derivatives are contracts and can be used as an underlying asset.
Derivatives are generally used as an instrument to hedge risk, but can also be used for speculative purposes."
http://www.investopedia.com/terms/d/derivative.asp#ixzz1vBC9gCij
It is important to note that hedging is actually the practice of attempting to reduce risk, but the goal of most hedge funds is to maximize return on investment. The name is mostly historical, as the first hedge funds tried to hedge against the downside risk of a bear market by shorting the market (mutual funds generally can't enter into short positions as one of their primary goals). Nowadays, hedge funds use dozens of different strategies, so it isn't accurate to say that hedge funds just "hedge risk". In fact, because hedge fund managers make speculative investments, these funds can carry more risk than the overall market."
http://www.investopedia.com/terms/h/hedgefund.asp#ixzz1vByyH1LE
A stress test is also used to evaluate the strength of institutions. For example, the Treasury Department could run stress tests on banks to determine their financial condition. Banks often run these tests on themselves. Changing factors could include interest rates, lending requirements or unemployment."
http://www.investopedia.com/terms/s/stresstesting.asp#ixzz1vBzp5bjc
http://www.investopedia.com/terms/h/housing_bubble.asp#ixzz1vC0IXE81
http://www.thecanadianencyclopedia.com/articles/nationalization
http://www.investopedia.com/terms/s/systematicrisk.asp#ixzz1vC39Tdft
http://www.investopedia.com/terms/m/moralhazard.asp#ixzz1vC3Kyeck
http://www.investopedia.com/terms/p/primerate.asp#ixzz1vC61RBXn
http://www.investopedia.com/terms/p/proprietarytrading.asp#ixzz1vC6yJ52J
2. The amount of ownership a stockholder has in a company, usually expressed as a percentage.
Interest is commonly calculated using one of two methods: simple interest calculation, or compound interest calculation."
http://www.investopedia.com/terms/i/interest.asp#ixzz1vC730cbi