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Banking Systems Ranked: who's first, who's worst

Articles & Blogs - International Commentary

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An institution known as the World Economic Forum has ranked the world's banking systems, as part of its annual “Global Competitiveness Report”. Before I discuss the results, let me take a minute to introduce this organization to people (like myself) who were not previously familiar with it.

This Swiss-based organization was founded in 1971. It is described by Wikpedia as being “best known for its annual forum in Davos, Switzerland which brings together top business leaders, international political leaders, selected intellectuals and journalists to discuss the most pressing issues facing the world...”

It describes itself as non-profit and non-partisan. It is funded by a group of 1,000 corporations, and has observer status with the United Nations. In its 2009 meeting, 2500 individuals from 91 countries gathered together, with about 75% of those people described as “business leaders”.

Here is a table it has produced, ranking the world's banking systems according to “soundness”, on a scale of 1 to 7. “Seven” represents “generally healthy with sound balance sheets” while “one” represents “insolvent and may require a government bail-out”. Given that no nation scored lower than 3.4, and given the serious and well-known financial problems in economies like Iceland and Zimbabwe, it would appear this institute has been very charitable when it comes to ranking the world's least-healthy financial systems.

With respect to those at the top, Canada ranks #1 in the world with a score of 6.7, narrowly edging-out Australia and New Zealand, who were both 1/10th of a point behind. Rounding out the top-10 were Chile, Hong Kong, South Africa, Namibia, Singapore, Panama and Brazil. The first point to note is that apart from Canada and Australia, Brazil was the only major economy to qualify in the top-10. Indeed, the next major economy to appear on this list is India – way down in 25th position.

While the Scandinavian nations all rank highly on this list, the highest-ranked, major European economy is France in 40th spot. The large Swiss financial system is close behind, ranked at 44th. China's banking system ranks almost perfectly in the middle of the rankings in 66th position – perhaps appropriate for a nation often referred to as “The Middle Kingdom”. The real “reality check” occurs when we look at the large financial systems in the U.S. and other larger European nations – who claim they have “fixed” the problems in their banking systems which led to the near-collapse of all of those systems.

After France in 40th position, these nations drop down to 69th for Italy, 84th for Japan – and then it gets really ugly. German banks are ranked 103rd on the list, the United States is listed in 108th position, while the United Kingdom's financial system is ranked an appalling 126th (out of a total of 133 countries).

Ranking ahead of those last three bottom-feeders are the banking systems of nations like Bangladesh (in 101st spot) – which is one of the poorest nations on the planet – along with economic “powerhouses” like Nepal (99th ), Cameroon (87th ), and Bosnia-Herzegovina (82nd ).

Whenever one sees a scoring system of this nature, with the various entities intentionally crowded together – rather than ranked with a scoring system which would spread out the results – the psychological intent is obvious: to hide the size of disparity between these banking systems, rather than draw attention to it. While it is not entirely appropriate from a statistical standpoint, I can provide readers a better picture of the huge gulf between the truly healthy financial systems in the world, and the “train-wrecks” which represent the banking systems of Germany, the U.S., and the U.K.

Instead of a cramped 1 – 7 spectrum (for 133 separate nations), I'll assign these banking systems scores which reflect the reverse order of their rankings. Thus, with this “revised” scoring, Canada's banking system scores 133, while Australia and New Zealand are close behind at 131.

Now returning to the worst-ranked banking systems, we would see the Ukraine with a score of 1, Mongolia with 2, Zimbabwe with 3, and Iceland with 4.

The U.K. banking system would register an appalling score of 8. The United States would receive a score of 26, while Germany would score a mere 31.

Suddenly it becomes quite easy to see the enormous gaps between the healthy banking systems and those clearly in a state of continuing “crisis” (whether they are willing to admit it or not).

With Canada at 131, and Zimbabwe at 3, the three worst banking systems among the world's developed economies are clearly much closer to the hyperinflation-nightmare of Zimbabwe than any legitimate state of “health”. Each time some liar in their government or business communities crow about how they have “saved” these banking systems, just remember how they stack-up against the competition – and that the “strong” banks of these nations are judged by their own governments as not being able to withstand any normalization of interest rates above the current 0 – 1% range.

It is nothing short of laughable to hear such claims of “health”, when the only thing stopping the collapse of these banking systems is giving these banks an endless and infinite supply of “free money” - despite the fact these governments know what the inflationary consequences are with such recklessness. There is no way to “drain” these inflationary effects from these economies without inducing the precise deflationary episodes these governments were so frantic to avoid. Short of that, an unprecedented wave of high inflation is already “baked into the cake”. Governments can lie all they want, but lies can't eliminate this inflation, merely delay it – at best.

People will know when (or if) the banking systems of these nations ever return to anything even close to “healthy” because we will see interest rates revert to their long-term historical averages of close to 5%. Unless/until that happens, claims of “health” for these financial systems are not meant to reassure the populations of these countries (and markets) but rather to deceive their people.

Don't hold your breath waiting for the U.S. government to voluntarily raise interest rates. As I mentioned in a recent commentary, with over $57 trillion in total public/private debt, each 1% rise in interest rates adds $500 billion per year in interest charges alone, this is equivalent to nearly a 5% drop in U.S. GDP. This is a point I first made in a popular, previous commentary (“Rising U.S. Interest Rates Signal Hyperinflationary Depression”).

There is no “exit strategy” for the U.S. government, and no signs of “health” in the financial systems of the world's bankster-capitals.

At the opposite end of the spectrum, for many years Canadian banks have been referred to as “boring” (and not in any sort of complimentary sense). Clearly, in the future the creation of “boring” banking systems is going to seem a lot more desirable to most people – and Canadian bankers will start to relish their label.

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