The collapse of Silicon Valley Bank (SVB) will certainly have impact on those with operations south of the border, but it is unlikely to have a significant direct impact on Canada’s banks and banking system.

It will of course cause temporarily strong movements of the stocks associated in any way with any banking system. Canadian bank stocks tumbled last week, losing nearly $20 billion in market capitalization, after California based SVB suffered a run on deposits and was taken over by U.S. regulators. Bank shares were down again on Monday, with Toronto-Dominion Bank falling the furthest, off nearly 3%.

Despite investor jitters, concerns for the Big Six Canadian Banks are limited. Unlike SVB, which catered to a niche market funding tech start-up company, Canada’s big banks dominate their home market and are diversified across industries and business lines.

The risk of direct contagion to the Canadian banking system is minimal. Some will feel the fallout a little more than others like BMO, who had just established a foothold in California, where SVB did most of its business. BMO’s growth outlook may have to be adjusted.

TD, a Canadian Bank that is very representative in the US may feel some short-term stock price pain as well. TD is in the process of acquiring First Horizon Corp. for US$13,4 billion but this may provide them with an opportunity to reduce their offer.

RBC has had a growing stake in the California market since its acquisition of City National Bank in 2015. There is not too much concern since California represents only seven to eight per cent of RBC’s total lending.

RBC was reportedly one of the potential suitors looking under the hood of SVB after regulators took control. According to Reuters, It seems that RBC had been exploring options to pursue SVB but was ultimately not comfortable with the risks involved. (RBC did not comment on that Reuters report)

Despite the uncertainties, authorities on both sides of the border offered assurances that the financial and banking systems were safe.

The Office of the Superintendent of Financial Institutions, Canada’s top banking regulator, seized SVB’s Canadian operations on March 12 and made it clear that SVB did not take deposits in Canada and that its collapse was due to its specific predicament.

The media will likely have a hay day with that. Many of the other big stories have calmed, financial markets are less volatile than last year (maybe not this week), Putin is running out of ammunition, China may has taken their confrontational language down a tone, and we are still a year away from the US election and 2 years from our own.

I think that U.S. deposit balances might shift from smaller financial players toward bigger banks with larger capital pools to reduce risk. The larger US banks have different regulations than the smaller players. While deregulation of banks has always prompted a boost to the economy, the long-term effect is always negative when you let the fox into the henhouse.

The Canadian banking system is a whole different entity than the American `banking system. To me, the German and Canadian Banks always had the most secure banking system in the world. The Germans have some issues that have put their spot on that list in question, but the Canadian Banking system is very strong. May be stay away from their stocks for a while.

Maybe the Americans will take a look at our system and… Never mind, that’s not going to happen.

When markets open today, they are most likely focused on Credit Suisse, a larger Financial Services company out of Switzerland. That stock will probably lose a third of it’s price and drag down the whole market for the day. They are in trouble, but they have been in trouble for about 2 years. The headlines today will cause the stock to take a dive until there is some reassurance to investors. Their problems were caused by “ineffective internal controls”, a deflective phrase to explain that management is incompetent or got too greedy. That management team changed 2022, but the fall of the bond market has most likely contributed to their troubles. I’m ok with mismanaged corporations going bankrupt. Without media it wouldn’t even be that big of a deal and there would be no contagion danger. Remind yourself that until last week, you most likely never heard of Silicon Valley Bank.