A Tale of Two Banking Sectors: Canada vs. U.S.
Regardless of which side of the 49th parallel you are on, banking sectors play a crucial role in both the financial system and the economy.
But while banks on each side of the border perform many similar functions, and have comparable economic impacts, the fact is that the U.S. and Canadian banking systems are very different.
Comparing Canadian and U.S. Banks
Today’s infographic comes to us from RBC Global Asset Management and it compares Canadian and U.S. banks directly based on a variety of factors.
The histories of both banking sectors are contrasted, but subjects such as the regulatory environments, market forces, the number and size of banks, and post-crisis landscapes are also compared. An outlook for investors on both sectors is also provided.
The end result is an interesting depiction of two banking sectors that are related in many ways, but that also have distinct differences and ways of doing business.
Historically, the Canadian banking system favors a limited quantity of banks, and many branches. It also carries the British influence of valuing stability over experimentation. Meanwhile, U.S. banking is more decentralized and localized, and more open to experimentation. This has led to trial and error, but also the world’s largest bank system.
Canada’s banking system tends to promote safety and soundness, while the American system keys in on privacy, anti-money laundering, banking access, and consumer protection measures.
The Canadian market is worth C$142 billion (US$111 billion) per year, while the U.S. market is over 10x bigger at US$1.4 trillion. Interestingly, these market sizes explain why Canadian banks often seek growth opportunities in the U.S. market, while U.S. banks just focus on the massive domestic sector for growth.
Number of Banks
There are 85 banks in Canada, and 4,938 in the United States.
Canada’s five biggest banks hold a whopping 89% of market share, while America’s five biggest banks only hold 35% of market share.
Canada’s “Big Five” Banks:
RBC: C$142 billion
TD: C$130 billion
Scotia: C$93 billion
BMO: C$62 billion
CIBC: C$49 billion
The Biggest Four Banks in the U.S.:
JPMorgan Chase: US$377 billion
Bank of America: US$310 billion
Wells Fargo: US$260 billion
Citigroup: US$179 billion
In Canada, there are no other institutions worth over C$25 billion, but in the States there are eight that are worth between US$50-$100 billion.
Outlook for Investors
Not only are the two banking environments quite different in terms of character – but Canadian and U.S. banks are at different points in their market cycles, as well.
Banks in Canada were minimally impacted by the Financial Crisis, and have been permitted to use lower risk weights than U.S. Banks. As a result, they’ve been able to hold less capital for each loan (i.e. higher leverage)
Banks in the U.S. have spent the past number of years building capital. Regulators required U.S. banks to be conservative in their approach post-crisis. As a result, U.S. banks have lower leverage than Canadian peers.
Canada’s “Big Five”:
Five Biggest U.S. Banks:
Canadian Banks: 3.9%
S&P/TSX Composite: 2.9%
Top 15 U.S. Banks: 2.5%
S&P 500: 2.1%
Which Sector Should Investors Choose?
There are compelling reasons to consider the financial institutions of either country:
- Canadian banks have a proven track-record of delivering steady dividends that have grown over time.
- Canadian banks have a strong global reputation for reliability and safety due to Canada’s sound regulatory framework and their relatively risk-averse approach.
- Canadian bank stocks can also be a good source of consistent income, with dividends that pay higher than the market. Canadians also doubly benefit, since to the Canadian dividend tax credit.
- U.S. banks have significantly improved their balance sheets and capital structure over the past decade to be better positioned for future market cycles.
- Stronger U.S. economic growth combined with changing monetary policy creates a positive environment for U.S. banks to benefit from increased business and consumer demand and wider interest rate spreads.
- Recent tax cuts and deregulation are likely to benefit U.S. banks, as savings stand to contribute to earnings per share, and potentially lead to higher dividend payouts along with share buybacks.
Canadian and U.S. banks are similar in many ways – but their differing histories, competitive frameworks, and economic environments each provide unique exposure for investors.
Visualizing The World’s Largest Sovereign Wealth Funds
To date, only two countries have sovereign wealth funds worth over $1 trillion. Learn more about them in this infographic.
Visualized: The World’s Largest Sovereign Wealth Funds
Did you know that some of the world’s largest investment funds are owned by national governments?
Known as sovereign wealth funds (SWF), these vehicles are often established with seed money that is generated by government-owned industries. If managed responsibly and given a long enough timeframe, an SWF can accumulate an enormous amount of assets.
In this infographic, we’ve detailed the world’s 10 largest SWFs, along with the largest mutual fund and ETF for context.
The Big Picture
Data collected from SWFI in October 2021 ranks Norway’s Government Pension Fund Global (also known as the Norwegian Oil Fund) as the world’s largest SWF.
The world’s 10 largest sovereign wealth funds (with fund size benchmarks) are listed below:
|Country||Fund Name||Fund Type||Assets Under Management (AUM)|
|🇳🇴 Norway||Government Pension Fund Global||SWF||$1.3 trillion|
|🇺🇸 U.S.||Vanguard Total Stock Market Index Fund||Mutual fund||$1.3 trillion|
|🇨🇳 China||China Investment Corporation||SWF||$1.2 trillion|
|🇰🇼 Kuwait||Kuwait Investment Authority||SWF||$693 billion|
|🇦🇪 United Arab Emirates||Abu Dhabi Investment Authority||SWF||$649 billion|
|🇭🇰 Hong Kong SAR||Hong Kong Monetary Authority Investment Portfolio||SWF||$581 billion|
|🇸🇬 Singapore||Government of Singapore Investment Corporation||SWF||$545 billion|
|🇸🇬 Singapore||Temasek||SWF||$484 billion|
|🇨🇳 China||National Council for Social Security Fund||SWF||$447 billion|
|🇸🇦 Saudi Arabia||Public Investment Fund of Saudi Arabia||SWF||$430 billion|
|🇺🇸 U.S.||State Street SPDR S&P 500 ETF Trust||ETF||$391 billion|
|🇦🇪 United Arab Emirates||Investment Corporation of Dubai||SWF||$302 billion|
SWF AUM gathered on 10/08/2021. VTSAX and SPY AUM as of 09/30/2021.
So far, just two SWFs have surpassed the $1 trillion milestone. To put this in perspective, consider that the world’s largest mutual fund, the Vanguard Total Stock Market Index Fund (VTSAX), is a similar size, investing in U.S. large-, mid-, and small-cap equities.
The Trillion Dollar Club
The world’s two largest sovereign wealth funds have a combined $2.5 trillion in assets. Here’s a closer look at their underlying portfolios.
1. Government Pension Fund Global – $1.3 Trillion (Norway)
Norway’s SWF was established after the country discovered oil in the North Sea. The fund invests the revenue coming from this sector to safeguard the future of the national economy. Here’s a breakdown of its investments.
|Asset Class||% of Total Assets||Country Diversification||Number of Securities|
|Public Equities||72.8%||69 countries||9,123 companies|
|Fixed income||24.7%||45 countries||1,245 bonds|
|Real estate||2.5%||14 countries||867 properties|
As of 12/31/2020
Real estate may be a small part of the portfolio, but it’s an important component for diversification (real estate is less correlated to the stock market) and generating income. Here are some U.S. office towers that the fund has an ownership stake in.
|601 Lexington Avenue, New York, NY||45.0%|
|475 Fifth Avenue, New York, NY||49.9%|
|33 Arch Street, Boston, MA||49.9%|
|100 First Street, San Francisco, CA||44.0%|
As of 12/31/2020
Overall, the fund has investments in 462 properties in the U.S. for a total value of $14.9 billion.
2. China Investment Corporation (CIC) – $1.2 Trillion (China)
The CIC is the largest of several Chinese SWFs, and was established to diversify the country’s foreign exchange holdings.
Compared to the Norwegian fund, the CIC invests in a greater variety of alternatives. This includes real estate, of course, but also private equity, private credit, and hedge funds.
|Asset Class||% of Total Assets|
As of 12/31/2020
A primary focus of the CIC has been to increase its exposure to American infrastructure and manufacturing. By the end of 2020, 57% of the fund was invested in the United States.
“According to our estimate, the United States needs at least $8 trillion in infrastructure investments. There’s not sufficient capital from the U.S. government or private sector. It has to rely on foreign investments.”
– Ding Xuedong, Chairman, China Investment Corporation
This has drawn suspicion from U.S. regulators given the geopolitical tensions between the two countries. For further reading on the topic, consider this 2017 paper by the United States-China Economic and Security Review Commission.
Preparing for a Future Without Oil
Many of the countries associated with these SWFs are known for their robust fossil fuel industries. This includes Middle Eastern nations like Kuwait, Saudi Arabia, and the United Arab Emirates.
Oil has been an incredible source of wealth for these countries, but it’s unlikely to last forever. Some analysts believe that we could even see peak oil demand before 2030—though this doesn’t mean that oil will stop being an important resource.
Regardless, oil-producing countries are looking to hedge their reliance on fossil fuels. Their SWFs play an important role by taking oil revenue and investing it to generate returns and/or bolster other sectors of the economy.
An example of this is Saudi Arabia’s Public Investment Fund (PIF), which supports the country’s Vision 2030 framework by investing in clean energy and other promising sectors.
Visualizing the Race for EV Dominance
Tesla was the first automaker to hit a $1 trillion market cap, but other electric car companies have plans to unseat the dominant EV maker.
Electric Car Companies: Eating Tesla’s Dust
Tesla has reigned supreme among electric car companies, ever since it first released the Roadster back in 2008.
The California-based company headed by Elon Musk ended 2020 with 23% of the EV market and recently became the first automaker to hit a $1 trillion market capitalization. However, competitors like Volkswagen hope to accelerate their own EV efforts to unseat Musk’s company as the dominant manufacturer.
This graphic based on data from EV Volumes compares Tesla and other top carmakers’ positions today—from an all-electric perspective—and gives market share projections for 2025.
Auto Majors Playing Catch-up
According to Wood Mackenzie, Volkswagen will become the largest manufacturer of EVs before 2030. In order to achieve this, the world’s second-biggest carmaker is in talks with suppliers to secure direct access to the raw materials for batteries.
It also plans to build six battery factories in Europe by 2030 and to invest globally in charging stations. Still, according to EV Volumes projections, by 2025 the German company is forecasted to have only 12% of the market versus Tesla’s 21%.
|Company||Sales 2020||Sales 2025 (projections)||Market cap (Oct '21, USD)|
|SGMW (GM, Wulling Motors, SAIC)||211,000||1,100,000||$89B|
Other auto giants are following the same track towards EV adoption.
GM, the largest U.S. automaker, wants to stop selling fuel-burning cars by 2035. The company is making a big push into pure electric vehicles, with more than 30 new models expected by 2025.
Meanwhile, Ford expects 40% of its vehicles sold to be electric by the year 2030. The American carmaker has laid out plans to invest tens of billions of dollars in electric and autonomous vehicle efforts in the coming years.
Tesla’s Brand: A Secret Weapon
When it comes to electric car company brand awareness in the marketplace, Tesla still surpasses all others. In fact, more than one-fourth of shoppers who are considering an EV said Tesla is their top choice.
“They’ve done a wonderful job at presenting themselves as the innovative leader of electric vehicles and therefore, this is translating high awareness among consumers…”
—Rachelle Petusky, Research at Cox Automotive Mobility Group
Tesla recently surpassed Audi as the fourth-largest luxury car brand in the United States in 2020. It is now just behind BMW, Lexus, and Mercedes-Benz.
The Dominance of Electric Car Companies by 2040
BloombergNEF expects annual passenger EV sales to reach 13 million in 2025, 28 million in 2030, and 48 million by 2040, outselling gasoline and diesel models (42 million).
As the EV market continues to grow globally, competitors hope to take a run at Tesla’s lead—or at least stay in the race.
Misc3 weeks ago
A Deep Dive Into the World’s Oceans, Lakes, and Drill Holes
Misc4 weeks ago
Visualizing The Most Widespread Blood Types in Every Country
Misc4 weeks ago
The Problem With Our Maps
Misc2 weeks ago
24 Cognitive Biases That Are Warping Your Perception of Reality
Technology4 weeks ago
From Amazon to Zoom: What Happens in an Internet Minute In 2021?
Misc3 weeks ago
Ranked: The 35 Vehicles With the Longest Production Runs
Demographics2 weeks ago
The Richest Women in America in One Graphic
Personal Finance3 weeks ago
Ranked: The Best and Worst Pension Plans, by Country