The Canadian banking system, already reeling from nonperforming real estate loans during the worst recession in decades, has been hit hard by the crisis at Olympia & York.
It was pressure from the financial institutions, especially noteholders on the 72-story First Canadian Place building in Toronto that many analysts feel pushed Olympia & York into filing for bankruptcy protection.
Olympia & York filed just hours before a deadline that would have allowed creditors to move to seize the building. The company had missed a payment of $17 million (Canadian; US$14.1 million) in interest on $325 million worth of mortgage bonds.
Canadian banks are already on the hook for at least C$3.3 billion in loans to Olympia & York; those loans were made by the six largest banks in Canada that do 90 percent of the commercial banking in the country.
The sixth largest, Montreal based National Bank, has the most exposure - C$500 million - as a percentage of its assets. The Canadian Imperial Bank of Commerce, the second largest bank in the country, has C$1.15 billion in loans to Olympia & York, but analysts say it is actually less at risk because of its size.
The bankers and the government deny there is a crisis. "The Canadian banks have more than sufficient capital to handle any situation," says Helen Sinclair, president of the Canadian Bankers Association. "Canadian banks are not in danger. They are well capitalized, perhaps the best capitalized in the world."
The Minister of Finance, Donald Mazankowski, says the Olympia & York crisis would "obviously have some effect, but not an effect that would undermine the integrity of the financial institutions. They remain very strong."