Bank of Canada joins other global central banks with measures for tackling the banking crisis

On Sunday, some of the world’s largest central banks came together in order to implement measures aimed at stopping a banking crisis from spreading, as Swiss government persuaded UBS Group AG to buy rival Credit Suisse Group AG.

According to the deal terms and conditions, UBS will pay 3 billion Swiss francs (US$3.23 billion) for 167-year-old Credit Suisse and accept up to US$5.4 billion in losses in a deal backed by a strong Swiss guarantee. The deal is expected to close by the end of this year.

Following the announcement on March 19, the U.S. Federal Reserve, the Bank of Canada, European Central Bank and other central banks released statements to reassure markets affected by a banking crisis that began with the collapse of two U.S. banks this month.

We haven’t seen such a massive global response since the peak of the pandemic. The Fed joined with central banks in Canada, England, Japan, the EU and Switzerland in a coordinated action to increase market liquidity.

The banks are now offering daily loans in dollars to their banks to avoid the stress in the funding market.

The move is similar to the one we’ve seen during the global financial crisis more than ten years ago. Starting Monday, the Federal Reserve and the central banks of the Eurozone, Britain, Japan and Canada offer seven-day dollar loans to their banks.

DBRS Morningstar’s report says Canada’s Big Six banks lost billions of dollars in market capitalization amid the global banking crisis. However, according to the company, the sector is well-prepared for such volatility.

“Usually, the Canadian banks have a lower exposure to issues with fixed-income securities, diversified and stable funding, sufficient liquidity, prudent risk/liquidity management, and capital buffers, so it will help them go through the current market turbulence,” – it explains.

The report also shows that a collapse of Canadian banks is less likely than in case of the U.S., as there are only 85 banks in Canada that have deposit protection, while there are 4,700 of them in the U.S. Moreover, Canadian banks are less exposed to riskier investments in the tech and oil and gas sectors.

 

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