Canada needs to prepare as the risk of bank runs rises, warns report
Canada may not have had a big banking failure in many years, but “emerging clouds on the horizon” suggest the existing checks and balances may need tweaks to be sustainable in the future, says an official who used to work for the country’s top banking regulating agency.
The failure of several regional banks in the United States and the fall of Credit Suisse Group AG in Switzerland in 2023 means the reforms enacted after the global financial crisis of 2007-08 are not sufficient, said Mark Zelmer, a senior fellow at the C.D. Howe Institute who was once the deputy superintendent at the Office of the Superintendent of Financial Institutions.
“It would be easy to say, don’t worry, be happy because everything has gone well for several decades,” he said. “But I think last year’s events have led me to think that the world is changing. It is better to think when times are calm about how things could evolve in the future as opposed to waiting for the problem. I would hate for Canada to lose its reputation.”
Last year, authorities in both the U.S. and Switzerland had to step in to prevent banking failures from triggering broader disruptions to their financial systems and economies.
Silicon Valley Bank, one of the failed lenders, lost almost 85 per cent of its deposits over a span of two days. This suggests that bank runs — when a large group of depositors withdraw money at the same time due to fears of insolvency — in the “digital and social media age” can take place very quickly, Zelmer said, and that risk is likely to continue growing.
The U.S. situation also indicates that “smaller, less sophisticated institutions” can collectively cause issues if they rely on similar business models and groups of depositors, he said in a
Read more on financialpost.com
