Almost everyone is now aware of the Home Capital Group’s debacle. The alternative mortgage lender, which operates our of Canada, has had its high-interest saving balances reduced from $1.4B to a mere 340 million within less than a week. I have been consuming a lot of articles about the company (see some links below), and it seems to me that this ‘bank run’ is solely due to the loss in confidence over the banks. Currently, as it seems, that the book is ‘healthy’ (as per the media), however, in my opinion (albeit I do not profess to be an expert in calling the timing of the markets), a 33% YoY increase in house prices is sign of a bubble. I imagine Home Capital has originated mortgages in the last year, and some of these mortgages would end up being ‘slayed’ in a down market, say if the market reverts to the price it was in 2016 (which is a 33% decrease!).
The other question is if there will be a bank run on the Canadian banks? Currently the Canadian big-6 banks are well capitalized, however, will this change in market sentiment move the inter-bank rates against the Canadian Banks? (think Greece / Portugal /Spain). We will find that out shortly!