Canada has had its first bank failures since 1923, both in the western oil province of Alberta. Early this week the federal government shut down the Canadian Commercial Bank of Edmonton and the Calgary-based Northland Bank, saying they ``were no longer viable.'' A Toronto banker described the failures as ``inevitable.''
Big loans to the energy and real estate sectors led to the collapse of both banks.
Auditors have been appointed to wind up the banks' affairs. Depositors are covered by the Canadian Deposit Insurance Corporation, but only up to $60,000 Canadian ($43,920 US). Ottawa has hinted it will help out those who have larger deposits. ``The government's first priority remains the depositors of the banks,'' says the minister in charge of financial institutions, Barbara McDougall.
Bankers moved quickly to reassure depositors that their money was not in danger. ``Ninety-seven percent of deposit accounts are fully protected by deposit insurance,'' says Robert McIntosh, president of the Canadian Bankers Association. None of the other 12 Canadian banks, or the 57 foreign banks, are in danger, he says.
Still, many depositors are heading for the safety of larger banks. The Canadian Commercial Bank admitted it lost more than $850 million in deposits after problems first surfaced last March.
Although the financial community, centered in Toronto, was not surprised that the two banks went under, it did come as a shock to the average Canadian.
Banking is tightly regulated by the federal government, which decides the type of business banks can do. The Bank Act is reviewed about once every 10 years. Banks were once not allowed to lend mortgage money; that rule changed, and now they dominate the mortgage market.