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Canadian Banks Could Be Blindsided If Commodities Cool

by: Larry MacDonald July 21, 2008    
Larry MacDonald

Larry MacDonald

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While the position of Canadian banks is improving vis a vis U.S. banks due to the financial crisis (as argued in my previous post), it would be not be entirely accurate to attribute the improvement solely to the more conservative practices of Canadian banks. Their balance sheets and capital ratios are also holding up better because the Canadian economy has been buoyed by the global boom for commodities.

So while Canadian banks may seize opportunities in the U.S. market, there is also a risk they could be blindsided by a cooling off of the insatiable demand for metals, minerals, and foodstuffs. Whether or not the commodity boom goes into remission depends upon the extent of the economic downturn now said to be in progress. If it’s severe and spreads to emerging countries, then Canadian bank stocks will find it tough going regardless of the potential for making inroads into the U.S.

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