Canada’s top banks got a “negative” ratings from ratings agency S&P over concerns about the federal government’s stance on possible bailouts in the future.
The decision is taken on the concern that the government might be reluctant to “bail out” top banks with tax-payers money if another financial meltdown (similar to 2008-2009) happens in the future. This virtually takes away the “too big to fail” status from the banks and make them susceptible to liquidation in another event of financial meltdown.
“The outlook revision reflects our expectation of reduced potential for extraordinary government support,” wrote credit analyst Lidia Parfeniuk in a note released Friday (8th Aug 2014).
The negative outlook covered all of the major Canadian Banks – Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD Canada Trust), Bank of Nova Scotia (Scotia Bank), Canadian Imperial Bank of Commerce (CIBM), Bank of Montreal (BMO) and National Bank of Canada (NBC).
This is important to note that Canadian Banks are counted among the world’s most stable banks. Despite the downgrades, the TSX financial sector was ahead 0.55 per cent on Monday, with all of the major bank stocks higher.