Despite the stability of the Canadian banking system, the largest banks in the country fail to rank among the top 25 strongest banks in the world, according to a 2009 international ranking.

The 2009 Top 1,000 World Banks ranking, featured in the Financial Times Group’s The Banker magazine, benchmarks banks around the world according to their capital strength.

Earning the top spot in this year’s ranking was J.P. Morgan Chase & Co., with Tier 1 Capital of US$136.1 billion. J.P. Morgan’s takeover of Bear Stearns and Washington Mutual helped it to climb into the top position, the magazine noted.

In the second spot was Bank of America Corp., followed by Citigroup, Royal Bank of Scotland and HSBC Holdings. HSBC was the only bank in the top five that did not receive any government support in the financial crisis.

All five banks also comprised the top five in last year’s ranking. Although their order has changed, this indicates that the international banking structure — dominated by Western banks with a handful of Japanese and Chinese players — remains relatively stable, according to the study.

None of the Canadian banks landed in the magazine’s overall ranking of the 25 strongest banks in the world.

Among the Big Five banks in Canada, Royal Bank of Canada ranked the highest in the 34th spot, with Tier 1 Capital of US$25.5 billion. Bank of Nova Scotia ranked 40th with Tier 1 Capital of US$23.5 billion, Toronto-Dominion Bank ranked 46th with US$20.9 billion, Bank of Montreal ranked 52nd with US$19 billion, and CIBC ranked 71st with US$12.5 billion.

The ranking reveals the full extent of the carnage in the global banking system. Since last year, system profits plummeted 85.3% from US$780.8 billion to US$115 billion and return on equity dropped from 20% to 2.69%.

Individual bank losses rank as high as $59.3 billion for the Royal Bank of Scotland, followed by hefty losses of US$53.1 billion at Citigroup and US$47.8 billion at Wells Fargo & Co.

The only Canadian bank to rank among the 25 banks with the largest losses was CIBC, taking the 15th spot with a loss of US$4.31 billion.

The study finds that the banks which fared the best in this year’s ranking were those that stuck to the basics of banking, taking deposits and lending in their home markets.

Earning the highest profits were Industrial and Commercial Bank of China at US$21.3 billion, followed by China Construction Bank at US$17.5 billion and Spain’s Santander Central Hispano, with US$15.8 billion.

“These banks stuck to the basics of banking and did not get involved in some of the more complicated and highly leveraged financial instruments that caused so much damage at banks like Citigroup, Royal Bank of Scotland and UBS,” said The Banker’s editor Brian Caplen. “In the case of Spain they were helped to do so by the strictures of a tough national regulator.”

RBC ranked 10th worldwide in terms of profits, earning US$6.08 billion, while TD Bank took the 24th spot with a profit of US$4.15 billion.

As the global banking system emerges from the financial crisis, safer and more conservative standards will prevail, according to the editors of the study.

“In future banks will be run much more conservatively,” said Caplen. “Regulators will require them to hold more capital and be less leveraged. This will reduce the profits of the industry as a whole but will bring about a safer banking system.”

IE