What the Big Short’s Steve Eisman thinks of the financial crisis 10 years later
|National Post 14 Sep 2018 at 05:52|
Q: This Saturday (Sept. 15) marks 10 years since the collapse of Lehman Bros. What has been the most significant change you’ve seen in global markets since then?
A: I think the biggest change, at least in the United States, is how much more extensively and harshly banks are regulated. Let’s use Citigroup as an example. So just before the financial crisis started, Citigroup was levered about 33 to 1. Today, it is levered about 10 to 1. That is, in my world, like comparing the distance from Mercury to Pluto. It’s such an enormous change it’s hard to even describe it. I can honestly say for the first time in all the many, many years that I have covered the financial services sector, I actually think the banking system in the United States is safe.
Q: What about Canada?
A: One of the potential issues with the Canadian banks is that the risk weights that are given to mortgages are exceptionally low and that’s because there have been no losses in Canada for 25, 30 years. So for example, if you look at the larger Canadian banks, you’ll see that they assume the risk rates are in the single digits — and to get to that number they assume 85 per cent of the mortgages that they have that are not government-guaranteed will produce losses of 20 basis points or less per year.