The following is from an article in today's Glog and Mail (Canadian's largest national paper)

Ian de Verteuil, a BMO Nesbitt Burns analyst who compiled the numbers in a recent research report, noted that there are several problems with such a heavy reliance on securitizations. Underwriting standards become less stringent (if you're not keeping a loan on your books, there's less reason to be picky); the complexity of the securities backed by these mortgages require more reliance on rating agencies, which have shown themselves to be sorely lacking; and the fact that many of these securities are held by unregulated entities like hedge funds makes central bank interventions less effective.

"We believe the fundamental difference between the Canadian and the U.S. banking systems is that Canada still effectively runs an on-balance-sheet banking system, while the U.S. does not," Mr. de Verteuil wrote in his report.

This is not to say there haven't been problems: several of the banks have had exposure to subprime mortgages and faltering bond insurers.

CIBC, the worst hit, suffered almost $7-billion in writedowns.

Even so, the capital position of these banks remains very strong, and investors noticed have this. Although the index of Canadian banks has fallen about 10 per cent this year, that is far less than the U.S. industry (25 per cent), Europe (38 per cent) or Asia (37 per cent). And this relative strength has catapulted RBC to the number four ranking among North America's big banks - a big leap, considering its planned merger with BMO in 1998 would have made the combined company a distant 10th.

Instead of being devoured, the Canadian banks might do some devouring of their own. Chief executives of the Big Five are being pitched daily on potential acquisitions in the U.S. sector, and most believe they will find some bargains to fuel their expansion.

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World beater

Canadian banks have far outperformed others in the U.S., Asia, Europe and the world so far this year.

Canada: -10.1%

US: -25.4%

Asia: -37.0%

Europe: -37.9%

World: -36.4%

CIBC World Markets

It show that American banks didn't have to go down the path they did with the majority of morgages securitized and therefore breaking the connection between borrower and lender