Canadian banks rattled over SVB collapse in US

Although the collapse of Silicon Valley Bank should not have a significant direct impact on Canadian banks, fallout from the crisis ignited a contagious selloff in financial stocks, erasing billions of dollars in value from Canada's top banks over the past few days.

Canada's main stock benchmark slumped more than the S&P 500 on Monday as the biggest US bank failure in more than a decade roiled the market.

Some of the nation's biggest lenders, including Bank of Nova Scotia (Scotiabank), Bank of Montreal and Toronto-Dominion Bank fell more than 2 percent after SVB entered receivership on Friday. The big banks on the Toronto Stock Exchange closed 0.8 percent higher in a partial rebound Tuesday.

Most of the large Canadian banks have acquired regional US banks in recent years, increasing their exposure to the fallout from SVB's failure.

SVB's collapse was the second-biggest bank failure in US history since the 2008 financial crisis. US regulators stepped in on March 10 to seize the tech start-up lender's assets, after billions of dollars were withdrawn by fearful depositors, which led to a run on the bank.

Canada's top banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), 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.

SVB has operated in Canada since February 2019 as a foreign bank branch. It listed e-commerce darling Shopify Inc as a client, which was among the biggest decliners on the Toronto Stock Exchange.

Peter Routledge, the superintendent of OSFI, issued a notice declaring that he will seek permanent control of the assets and request that Canada's attorney general apply for an order to wind down the company.

"By taking temporary control of the Canadian branch of Silicon Valley Bank, we are acting to protect the rights and interests of the branch's creditors," Routledge said in a statement.

"I want to be clear: the Silicon Valley Bank branch in Canada does not take deposits from Canadians, and this situation is the result of circumstances particular to Silicon Valley Bank in the United States," the statement said.

OSFI is taking steps toward daily check-ins with Canadian financial institutions to monitor their liquidity in the wake of SVB's collapse, according to The Globe and Mail.

On Friday, customers of Signature Bank, a New York-based institution with deep ties to the real estate and legal industries, were shocked by the sudden collapse of SVB. Their sudden withdrawal of deposits quickly led to the third-largest bank failure in US history.

Regulators announced late Sunday that Signature was being taken over to protect its depositors and the stability of the US financial system.

Despite the uncertainties of the collapse of SVB and Signature, authorities on both sides of the border offered assurances that the financial and banking systems are safe.

Canadian bankers believe that concerns for its Big Five banks were limited. Unlike SVB, which catered to a niche market funding tech startups, Canada's big banks dominate their home market and are diversified across industries and business lines, according to the Financial Post.

"From a Canadian perspective, not only should the failure of SVB not have significant negative implications for our banks, but this crisis should actually be viewed as further vindication of the Canadian banking model, which is dominated by a few large and diversified players," Scotiabank analyst Meny Grauman said in a note on Monday.

He suggested that the US banking sector could become more concentrated, like its Canadian counterpart. Even without formally making such a move, US deposit balances might shift from smaller financial players to banks with larger capital pools, to reduce risk.

Ben Bergen, president of the Council of Canadian Innovators, told Global News that although the direct impact on Canadian banks is limited, there's going to be a "hangover" in tech related to SVB's collapse. He said it could exacerbate challenges already facing the sector.

Bergen said that the tech industry has been hit hard as the economic outlook turns, with fears of a recession coming in 2023. Many big companies, including Amazon, Microsoft and Canada's Shopify have gone through heavy layoffs over the past year.

"It's difficult to raise capital for early-stage companies trying to get off the ground right now, and the collapse of SVB — a go-to for many founders looking for a startup-friendly lender to get their start — will only make that harder," he said.

Agencies contributed to this story.