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

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

Business Wire

CHICAGO -- May 2, 2013

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.

Additional information is available on www.fitchratings.com

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Applicable Criteria and Related Research

U.S. Money Fund Exposure and European Banks: Decline Amid Eurozone Concerns

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707256

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Contact:

Fitch Ratings
Justin Fuller, CFA
Director
Financial Institutions
+1-312-368-2057
or
Martin Hansen
Senior Director
Macro Credit Research
+1-212-908-9190
or
Bill Warlick
Senior Director
Fitch Wire
+1-312-368-3141
Fitch, Inc.
70 W. Madison
Chicago, IL 60602
or
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Brian Bertsch, New York, +1 212-908-0549
Email: brian.bertsch@fitchratings.com
 
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