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Canadian Banks' Regulatory Capital Arbitrage Activity Dec 02
Standard & Poors, Dec 2002
Standard and Poors RatingsXpress Credit Research provides in-depth coverage of international corporates, financial institutions, insurance companies, utilities, sovereigns and structured finance programs. RatingsXpress Credit Research lets users determine the credit rating of holdings and identify key factors underlying an issuer's creditworthiness, distinguishes the different risk exposures for new and existing deals, and provides an understanding of how their analysts interpret key regulatory, political and environmental events and their economic impact.
Research Type: Commentary
Criteria articles describe the thought process and methodology Standard & Poor's analysts use in determining ratings. These commentary pieces discuss both the quantitative (economic and financial) and qualitative (business analysis and caliber of management) aspects of the analysis, as well as legal issues.
Abstract
In 1996, the major Canadian banks began in earnest to securitize their balance-sheet assets. Today, securitized assets represent about 6.8% of loans and bankers' acceptances excluding repurchase agreements (loans and BAs) for the big five Canadian banks (Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada, and The Toronto-Dominion Bank). Although securitization is an effective way of further diversifying funding sources and reducing the amount of on-balance-sheet leverage, the primary driver to these activities remains regulatory capital arbitrage. By managing down risk-weighted assets, capital ratios are enhanced under the Basel I framework. Originally, lower risk assets such as government-guaranteed mortgages were pooled and securitized. But as investors and issuers became more comfortable with...
Companies mentioned in this report are: Royal Bank of Canada,Toronto-Dominion Bank (The),Bank of Montreal,Bank of Nova Scotia (The),Canadian Imperial Bank of Commerce,National Bank of Canada,Laurentian Bank of Canada
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