Fitch: MMF Flows to Canadian Banks Signal Cross-Border Growth

Thu May 2, 2013 9:33am EDT

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(The following statement was released by the rating agency) CHICAGO, May 02 (Fitch) U.S. prime money market fund (MMF) allocations to Canadian banks have continued to grow in early 2013, highlighting the banks' interest in broadening sources of low-cost wholesale funding, according to Fitch. The largest Canadian institutions are seeking to maintain diverse sources of funding at a time when diminished growth opportunities in Canada have already led those banks to expand their retail deposit and capital markets businesses in the U.S., Fitch believes. For MMF investors, increased exposure to Canadian banks represents an opportunity to diversify away from Eurozone bank exposure, which declined significantly in March, in part due to the Cyprus crisis and political turmoil in Italy. Among the banks relying more heavily on MMF funding, Royal Bank of Canada (RBC) has increased lending in the U.S. as it expanded its U.S. capital markets business. Other banks, including TD Bank and Bank of Montreal, have focused on the development of their U.S. retail bank networks in recent years, expanding U.S. lending in the process. The most recent data from the Bank for International Settlements (BIS) on external assets and liabilities of Canadian banks show significant growth in U.S. financial claims over the last two years. Between year-end 2010 and year-end 2012, total claims (including both inter-bank and non-financial exposure) increased by approximately 30% as Canadian institutions grew their U.S. footprint. Four of Canada's six largest banks - Bank of Nova Scotia, RBC, Bank of Montreal and TD - were on the list of the top 15 sources of bank exposure during March among prime MMFs in our sample. Canadian banks remained the largest source of national exposure in the March sample, at 13.4% of total MMF assets. On a dollar basis, exposure to Canadian banks increased by 9% in the month of March. The total was 40% higher than May 2011, when intensification of the Eurozone crisis began pushing MMF flows away from Eurozone banks to other institutions, primarily in Canada, Australia and Japan. A detailed review of March MMF flows and shifts in exposure to banks around the world can be found in the special report "U.S. Money Fund Exposure and European Banks: Decline Amid Eurozone Concerns," dated April 30, 2013, at www.fitchratings.com. Contact: Justin Fuller, CFA Director Financial Institutions +1-312-368-2057 Martin Hansen Senior Director Macro Credit Research +1-212-908-9190 Bill Warlick Senior Director Fitch Wire +1-312-368-3141 Fitch, Inc. 70 W. Madison Chicago, IL 60602 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available on www.fitchratings.com RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. Applicable Criteria and Related Research U.S. Money Fund Exposure and European Banks: Decline Amid Eurozone Concerns here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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