CANADA FINANCE-Canada banks benefit from shadow banking's demise
(This story is part of a special Reuters News package highlighting Canada's financial sector. For a complete listing of stories, click on [ID:nN19445229].)
* Canada banks eye loans after demise of shadow banking
* Non-bank lenders once accounted for 45 pct of all loans
* Less competition makes lending more profitable for banks
* Banks divided on value of capital vs lending
TORONTO, June 25 (Reuters) - The demise of Canada's "shadow" lenders, which once accounted for nearly of half of all Canadian borrowing, has left a big void that the country's ever-cautious banks are taking tentative steps to fill.
While the big banks aren't about to drain their fat capital reserves with questionable loans, several now appear ready to provide auto and small-business financing that only alternative lenders were once willing to consider.
As money markets loosen and would-be borrowers grow desperate for loans, capital conservation is no longer the only game on Bay Street.
"You can look just in Canada, whether it is automotive finance, consumer credit -- you've had all of the shadow banking system disappear," said Gordon Nixon, chief executive of Royal Bank of Canada (RY.TO), the nation's largest.
"It provides us with an opportunity to grow our credit ... to deploy capital in our existing businesses and get very good returns," Nixon said.
It used to be when Canadians needed to borrow money to buy a car or expand a business, lenders clamored to offer a loan -- often at just a click of a mouse on a lending site.
Foreign lenders, restricted from operating banks in Canada, slid into the market by offering alternative financing.
GMAC or Chrysler Credit were in the auto showrooms to smooth the purchase of the shiny new car. Lenders like GE Money and Household Finance offered financing for consumer loans, mortgages and credit cards.
The burgeoning network of non-bank lenders was a boon to consumers, offering lower interest rates to win market share and unshackling Canadians from the big banks down the road, which often had stricter standards and higher prices.
But while the shadow bankers lent money like banks, the institutions that helped flood the world with easy credit were largely unregulated, and their habit of packaging their loans and selling them off ultimately sank the system. Continued...
