Canadian government unlikely to buy financial shares

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This article was published 13/10/2008 (5922 days ago), so information in it may no longer be current.

TORONTO — Canada’s government is unlikely to take the lead from U.S. officials and buy up shares in the country’s domestic banks because local financial institutions are in much better shape than their American competitors, suggest market observers.

National Bank analyst Robert Sedran says Canadian banks aren’t considered to be at a financial disadvantage like many of their international counterparts.

Instead, they’ve emerged relatively unscathed by the U.S. subprime problems because of more conservative lending practices.

However, he says there is a need to ensure that Canadian banks aren’t put at a disadvantage by other countries injecting capital into their local institutions.

Earlier Tuesday, George W. Bush announced an unprecedented US$250-billion plan to buy shares in the big American banks as part of the $700-billion bailout package.

The decision raised some concern that capital would flow to government-backed banks because they appear more secure.

Sedran says government risk will appeal to some over corporate risk, which could ultimately steal some confidence from the Canadian banking system.

However, Canadian banks are already better capitalized than the American and British banks, says Laurence Booth, a professor at the Rotman School of Management.

The federal government has made efforts to aid the local financial system without fully putting its hands into their operations.

On Friday, it bought C$25 billion in residential mortgages to give the chartered banks more cash for loans.

— THE CANADIAN PRESS