Canadian banks are protected from the consequences of the Silicon Valley Bank collapse

Although the collapse of Silicon Valley Bank has caused concerns among certain investors in terms of potential risks to Canadian banks, Mike Rizvanovic, an analyst at Keefe, Bruyette & Woods, assures that the nation’s banks are protected.

According to him, Canadian banks are mostly protected from threats that have caused the collapse of the U.S. bank.

“First of all, the diversification provides Canadian banks with strong protection from such kinds of situations. Secondly, Canadian banks did not have the same type of surge that we’ve seen in case of certain U.S. banks,” – Rizvanovic says.

In his opinion, there are three main factors contributing to a safe cushion for Canada’s banks: a large diversified base of clients who are less exposed to technology, fewer deposit runoff problems in Canada, and higher ratios of loans to deposits.

“In other words, there’s less hot money coming into the Canadian banks than what we see in case of certain small regional lenders focusing on a specific niche of the loan market in the deposit market,” – he noted, pointing that Canadian banks tend to be more conservative.

Rizvanovic says that decreases in the share prices of Canada’s big six banks caused by Silicon Valley Bank situation would be “unwarranted”.

Nevertheless, on Monday, the shares for Canada’s big six banks were down. For instance, Bank of Montreal shares fell by almost 5%.

Canada’s banking sector will not have to deal with significant risks related to its deposit base, as it remains “well-diversified across industries,” Rizvanovic noted.

Moreover, he says lending to the technology industry is lower in Canada.