Monday Market Minute | Mar 27, 2023

Banking fears subside as attention turns back to fundamentals

What Moved

Two weeks after SVB's failure and the Credit Suisse rescue, financial markets had largely stabilized. Canadian bank stocks recovered most of their losses, and OSFI signalled confidence in the Canadian system's resilience. The BoC had remained on pause, wisely declining to layer additional uncertainty onto fragile sentiment. Most notably, anecdotal evidence emerged that Canadian commercial banks were tightening lending criteria — particularly for CRE, construction, and mid-market corporate borrowers.

Why It Matters

The SVB aftermath produced a structural tailwind for Canadian private credit. Every bank that tightened its lending box created a displaced borrower who needed capital from somewhere. Private lenders with available capital and existing lending infrastructure were the direct beneficiaries. The crisis also validated the role of private markets as a portfolio diversifier — while bank stocks whipsawed 10–15%, private credit NAVs barely moved, and income distributions continued uninterrupted.

Signal to Watch

OSFI's guidance on bank capital requirements in the coming weeks would determine how aggressively the Big Six would pull back on commercial lending — the more they retreated, the larger the opportunity set for private capital.

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