Canadian banks relying more heavily on wholesale funding than global counterparts: Moody’s

Canada’s biggest banks are relying more heavily on wholesale funding than their global peers, a scenario that tends to raise the risk of periodic difficulties in refinancing debt, according to Moody’s Investors Service.

However, the ratings agency says the large Canadian banking institutions offset these risks C which can also raise the risk of failure C through their funding mix and large holdings of high-quality liquid assets related to their capital markets operations.

“While it’s true Canadian banks have a high reliance upon wholesale funding, they likewise have high levels of less-confidence-sensitive funding and sticky retail deposits, which increases the system’s overall funding profile,” said David Beattie, a senior vice president at Moody’s.

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In a report issued late Monday, he said the typical ratio of wholesale funding to tangible assets among the big banks was 36 percent.

Toronto-Dominion Bank had the cheapest ratio of wholesale funding to tangible assets, at 30 per cent, while National Bank of Canada had the highest ratio at 42 per cent, he said.

The Moody’s report said regulatory changes entering effect between 2015 and 2018 are likely to encourage the Canadian banks to lower their reliance upon short-term wholesale funding.