After the Storm

A few years removed from the global financial crisis, media continues to remind us of yesterday’s issues and today’s economic uncertainty as we surf our iPads or turn the pages of newspapers and business journals.

In the aftermath of the recession, U.S. banks were heavily criticized for risky practices such as subprime lending and issues related to mortgage-backed securities.  Many U.S. banks found themselves needing aid to survive, with most having to reestablish trust.  North of the border, however, the Canadian banking system was and continues to be widely praised for its security and stability despite North America’s turbulent times.

Todd Laforest, chief financial officer at Traffic Tech in Montreal, QC believes the tough times are in the rearview mirror.  Admittedly, some U.S. banks were very aggressive and many would say reckless, but Laforest believes “they’re paying for it right now” and valuable lessons were learned.  Laforest’s perspective is unique since his company is based in Canada, but its principal bank is in Pittsburgh.  Overall, he states, “On both sides of the border, the banking systems are very secure.”

Tom Beube, director of International Services at Chicago’s Wintrust Financial Corporation, also believes both U.S. and Canadian banking systems are secure and well regulated, though Canadians have had an advantage since their economy remained more stable.  Although the United States has “had to weather quite a substantial financial challenge over the last several years,” he notes, “it doesn’t change the fact that our system is perfectly sound and well-run.”

As 2013 unfolded, however, turbulence continued to plague the industry.  In late January, Moody’s Investors Service downgraded six of Canada’s biggest banks (Caisse Centrale Desjardins, Canadian Imperial Bank of Commerce, Bank of Montreal, Bank of Nova Scotia, National Bank of Canada, and Toronto-Dominion Bank)—and though the downgrades had more to do with increased signs of weakness in the country’s overall economy than the banks’ stability, it was nonetheless a blow to the financial community.

Primary Differences: Size & Structure

In the United States, there are commercial banks, thrift institutions commonly known as ‘savings and loans,’ and credit unions. The largest U.S. banks, as ranked in July 2012 by The Banker include JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley, US Bancorp, Bank of New York Mellon, and PNC Financial Services Group.

According to “Banks Around the World” at www.relbanks.com, assets for the top five U.S. banks by mid-2012 were JPMorgan Chase ($2.29 trillion), Bank of America ($2.16 trillion), Citigroup ($1.92 trillion), Wells Fargo ($1.34 trillion), and Goldman Sachs ($948 billion).  The top commercial banks account for nearly a third of the industry’s volume, and employ over two million wage and salaried workers, according to the U.S. Department of Labor.

Even with more than 7,000 U.S. banks and over 98,000 locations, the number of FDIC-insured financial institutions declined from 9,920 in 2000 to 7,181 in 2012; of these 6,168 are commercial banks.  The industry was heavily regional with no national banks, but now three—Bank of America, Citigroup, and Chase—have branches in all 50 states, according to the Federal Deposit Insurance Corporation (FDIC).