Royal Bank of Canada (NYSE:RY) RBC Capital Markets Global Financial Institutions Conference March 5, 2024 8:00 AM ET
Company Participants
Venkat Badinehal - Head, US Financial Institutions Group
Derek Neldner - Chief Executive Officer & Group Head, RBC Capital Markets
Dave McKay - President & Chief Executive Officer
Conference Call Participants
Venkat Badinehal
Good morning, everyone. On behalf of RBC, I wanted to thank everyone for being here. We always -- last meeting I had last year at the conference the client said -- we think it's going to be a boring here. And we all know that last year is anything, but boring. But hopefully this year will be very different in a different way. But I wanted to thank on behalf of all the parts of RBC and RBC Capital Markets. Thank you for joining us today.
I wanted to introduce Derek Neldner, Group Executive and CEO RBC Capital Markets to kick-off this morning's session. Welcome, Derek.
Derek Neldner
Good morning, everybody and welcome. I would just reiterate Vinnie comments and thank all of you on behalf of my colleagues at RBC for joining us for our Annual Financial Institutions Conference. It's a very important sector, very important venue and event for us each and every year. So I really do thank all of you for your participation.
This year, I'm very pleased to say we've got record annual attendance and so it certainly sets itself up for a very engaging two days of dialogue. And as Vinnie said, I think it's very timely.
As we reflect on 2023 it was certainly an eventful year in markets globally but certainly if you're a banker in the financial services sector we saw pervasive inflationary pressures that obviously drove a multi-decade shift in interest rates and monetary policy on the back of that.
We saw significant uncertainty on the outlook for employment, growth whether inflation would be under control the credit cycle no shortage of other items. And almost a year ago today we saw some of the pressures that created in terms of liquidity and funding on the banking sector, drive the very unexpected regional banking crisis again that was almost exactly a year ago from this conference.
As Vinnie mentioned as we look to 2024, I think, we're starting the year with a lot more visibility and a lot more reason for optimism although I think for all of us watching the economic data week-to-week it is still unclear exactly the path that we're going to see growth take whether inflation is under control. And increasingly, we're starting to see more divergence across countries and regions around the globe. So by no means do we have full transparency on what the next 12 months to 24 months is going to look like?
Against that backdrop some interesting things going on in financial services. We're seeing a lot of money in motion in the banking system as we saw funds shift to some extent out of the banking system and also into higher-yielding products and now with the strength in markets we're seeing a rotation back into equity fixed income securities.
The regulatory environment continues to change. And obviously we've got a lot of ongoing geopolitical uncertainty and with elections in over 50% of the world's countries this year a lot potentially surprises on the horizon. So needless to say this is a backdrop that creates a great forum for discussion. We look forward to the next couple of days engaging and sharing ideas with all of you.
To get going with our first session this morning there's no better way I don't think to kick-off this important discussion then with our own -- McKay, President and CEO of RBC to share his thoughts on the macro environment and how RBC is navigating through it some of the challenges, but more importantly the opportunities that that's creating for us.
Just by way of a quick introduction Dave joined RBC in 1983 and he became Group Head of Canadian Banking in 2008 where during his time amongst many different things through his leadership, he really brought a tremendous focus to technology and help place RBC at the forefront of the digital transformation in our business.
He assumed his current role as CEO in 2014. And since then he's very successfully led RBC through many strategic initiatives, but one of note is obviously our currently announced and pending acquisition of HSBC Canada that I'm sure Dave will speak further to.
Beyond his role as CEO Dave also serves as a member of the Board of Directors of the Business Council of Canada, a member of the US Business Counsel and on the Board of the Institute of International Finance and the Bank Policy Institute. He also serves on the Catalyst Canada Advisory Board and is the Chair of the business in Higher Education Roundtable. And in our home market north of the border Dave has been a passionate advocate for Canada's future prosperity and preparing youth for the future of work.
So please join me in welcoming to the stage Dave McKay. Good morning Dave.
Dave McKay
Good morning, everybody.
Question-and-Answer Session
A - Derek Neldner
So look forward to our discussion. We've got a few minutes, 30 minutes to cover a lot of different topics, but I obviously made a few remarks just about the macro backdrop that we've experienced over last year and that's pivoting but certainly, no full clarity on the horizon.
Maybe we could just start there Dave, and talk a little bit about your outlook for the economy, the business environment, what you're hearing for clients and then importantly, what some of the implications are you see for banks globally?
Dave McKay
Yes. It's good to be back this year. And congratulations to Vinnie and the team for putting together another record -- conference record attendees. So, we're very excited for the week and trying to figure some of these questions out.
And macro, macro and geopolitics seems to play heavy and heavier each year. As we talk through the impacts on our businesses and our clients' businesses even more importantly. And I think when you look at the factors at play, I think many of -- many of the impacts were evidenced in the Q1 bank results of the Canadian banks and on ROI in particular.
But I think there's a couple of differences to your point in the opening, you're seeing regions diverge. The impact of higher rates is not being spread equally across the global economy. And we see it most evidently here in the United States where, because of the 30-year fixed mortgage, there's no consumer debt being repriced.
There's strong salary increases and therefore, disposable income is very strong in the US, and continuing to fuel inflation and continuing to keep the economy going along with a very substantial government deficit, I would add, exponential [ph] day. So, very stimulative on both sides of the equation and therefore, the US economy is outperforming. But inflation is coming down. So, it's working.
In Canada and Australia and the UK to an extreme we do reprice mortgages. We are on a four or five-year repricing cycle this year in Canada. Banks are repricing roughly 15% of the back book. And those are fairly significant shocks to a consumer. And therefore, it's pulling disposable income back from the consumer. We're seeing that certainly in goods, demand is way down.
You're seeing economies that serve as a goods side, whether it's transportation in particular, struggle with that. You're seeing retail struggle with that. And you're seeing an equivalent slowdown in services and therefore, inflation is coming off, given the weaker demand much more quickly and you saw that in our credit card portfolios. Consistently, revolve rates are up and purchase volumes have moderated to down.
So, it belies an underlying slowing of the Canadian economy, the UK economy, the Australian economy, so -- and that's because -- largely because of the difference in how the consumer is behaving. We're running large deficits in Canada, same in Australia and the UK. What's different about this cycle and what we're trying to figure out and the conversations I have with clients and investors is around this new phenomenon where we've had higher rates for longer.
You're seeing the moderate inflation. Monetary policy is working yet we haven't seen much impact on employment. And I think that is one of the most significant changes that US is running at what 2-something percent unemployment and is running at just over 6%. In Canada we used to run 6% unemployment at the best part of the economy.
And then as you raise rates and went into a tightening cycle and went through a cycle, we would go up to 9%. So to have high-5s, low-6% unemployment with rates being that high for that long is a unique phenomenon in this particular cycle, in the United States as well. So you're seeing consumers are working. They're struggling with their debt in Canada and some equations at the lower end of the spectrum and you're starting to see a little bit of default.
But net-net consumers are working and therefore, there's a lot that banks can do with the consumer when they're working and help them manage through the stress. So, that's a different cycle impact than we've seen in previous cycles where unemployment in all markets with this level of rate and tightening going on was the way you slowed in the economy and it was the way you reduced demand in the economy.
So, I think from that perspective it's unique and it's helping us engineer a softer landing. We had a positive print in Canada and the market forecasted a negative print for Q4 putting us into a technical recession. We avoided that yet again, the US economy is more directed and a much higher probability now towards a softer landing. And I bring that back to a large government deficits cushioning the impact of monetary policy.
At the same time, the consumer is continuing to spend, because they're working. And therefore, we're engineering a softer glide path to that. We do hope rates come down in the Canadian marketplace to alleviate some of that pressure going forward. We certainly expect roughly 100 basis points this year and our own forecast and 100 next year and we hope that starts no later than the summer or June as we start to see a Canadian economy.
And the one final point I'll add to that, which is important is that some of the weakness in the Canadian economy from all of that consumer tightening is masked by a significant number of immigrants coming into the country. We would normally bring in 250,000, 300,000 immigrants historically. We brought in one million new immigrants into the country last year.
And, therefore, the demand cycle from that immigration has helped support the economy yet you see it in the debt -- the GDP per capita numbers are coming down because we're not generating an equivalent number of GDP yet with all those new residents. And, therefore, you'd expect that in a growth mode that your average GDP per capita is coming down. The key for Canada is when do you start to flatten that and start to grow it again and get a greater contribution for everyone in the country.
So I would say that's the tale of the tape at the end of the day generally a positive outlook with a higher propensity for a soft versus hard landing but don't rule out that when you have rates at these levels and they stay up there even if you drop 100 points, you're still in a tightening cycle don't forget. And you dropped another 50 points, the net neutral rate is probably not going to be reached until it's around 3%, right, 3.25%. So we're still in a tightening mode for a little while even when we see rates come down.
And I think that's the art and all of this versus the science that when do you start -- when you're confident that you've got a trajectory is going to be normally before you actually see the numbers. And, therefore, that's the art and being a central banker is to move at the right time before the number sits on your desk and say, oh, it's okay now. It's probably a bit late then.
So I think it's a unique cycle in that sense. And I think those are the factors that are helping engineers soft landing, which is good. I think overall for the economy, good for credit overall even though we're seeing a little bit of credit weakness as you'd expect with the tightening cycle, and therefore I think generally positive for the backdrop of this conference.
Derek Neldner
That's terrific. Thanks Dave. One thing that it seems like every time we go through a cycle one idiosyncratic question that comes up around Canada is the Canadian housing market. You touched on that a little bit differences in the mortgage structures between the US and Canada. We've seen, obviously, some pressure on pricing. We've seen activity slowdown in the real estate market in Canada. But at the same time you've got these dynamics like immigration and undersupply and affordability challenges that create a really different dynamic it feels like versus some prior cycles. Can you maybe talk about just how do you see that playing out over the next few years?
Dave McKay
You look at the reason why inflation is sticky in the country. And it's -- when you decompose it, the largest component of inflation right now is shelter inflation, up on average 8% year-over-year. So that's rent and mortgage financing costs for unknown home.
The other components are still a bit too high, but it is certainly boosting inflation. And to your point it's driven by demand up here and supply down there. The challenge is it's vicious circle to create greater supply you need lower rates. You need lower rates so more consumers will be ready and out to buy and be able to finance that buy. And, therefore, they will be available for presale for a new building to go up. And, therefore, you're in this vicious circle that supply is not being created because rates are high. And therefore demand is growing with new immigrants and you're exacerbating that supply/demand gap.
So we do need rates to come down to really solve this in the short and medium-term and get more supply to market. And I think that's the challenge. We've enacted some policy around foreign students and trying to alleviate the short-term nature of the demand increase until we figure out the supply side of the equation. And that's one of the reasons we made a commitment to more affordable housing in our communities as part of the HSBC deal, because it's really needed that funding is needed. So we're in this vicious circle of supply, but you can see why there's generally been really strong.
House price stability even in a higher rate environment in Canada, we saw a 10% runoff in 2023. It's flattened but that's after a 25-plus percent run up in 2020 and 2021. So we're still that have grown the average equity in Canadians homes quite significantly since the pandemic and we see that in our lending book, we see an average loan to value now in the low 50s on our $400 billion mortgage books.
So there is significant credit [ph] that’s build up and their consumers are working and therefore they're able to manage for the most part on the secured side, they're able to manage this heavier debt load very, very well. So I think that's going to work itself through. In addition to we need to get permitting more quickly through the municipal system and the provincial system that we can create supply. So if rates come down and we don't get these projects permitted then we're back into this delayed creation of supply.
So I think it's managing the demand a little bit, lower rates help supply the credits kind of there I think ready to go. And there's, lots of builders that are sitting on their hands just waiting to go into pre-sell mode right now. I just had dinner with, 40 of them, a couple of days ago. And they're itching to go.
Obviously, they've got a lot of land in the bank, and their land banks. And they're waiting to bring it to market. They need permitting and they need lower rates to get consumers off the bench into pre-sell mode. So I think, all of that I think both, the instability in the short-term, but stability I think overtime.
Derek Neldner
Got it. Maybe switching gears, I mentioned in my remarks, you just touched on at the HSBC transaction.
Dave McKay
Yes.
Derek Neldner
Obviously, largest acquisition RBC has done $13.5 billion very exciting opportunity. Maybe you could just share now we've gone through a long regulatory process. We're getting closer to closing.
You knew the bank well, but you get to know it better as you go through that process. How are you feeling today Dave about, the benefit to clients? How that helps the offering, we'll be taking to market and then obviously the benefits to RBC and our shareholders?
Dave McKay
Yeah. It's a very strong franchise, a franchise that we've gotten to know over years competing against them. And over the last year, and a bit more intimately obviously as we start to share conversion plans for the end of this month and prep that.
And some of that was delayed until we get approval in December. And we've been able to accelerate that. So even if you look at their last quarterly results they're very strong credit bank. They've managed their credit exceptionally well. Their credit performance was better than ours on their retail side over the last year.
So they're a very good credit bank. They're a very good customer-centric bank. Limited in their offering domestically on a number of fronts, which we think we can improve on. We'll bring a better suite of investment products. We'll certainly bring a better suite of cash management product to them. We'll bring a broader credit card lineup to the forefront. We'll bring better digital capabilities to the forefront. So all of that their customers will benefit from by moving on to our platform.
It's a close and convert where we lift, the bank out of HSBC Global. And we put it on top of our tech stack in 48 hours on a weekend. So it's a very complex conversion but one that allows us to operate the bank from day one, on our own tech stack and therefore accelerate certainly the synergies around technology and operations for us to the start of the deal. So we're very excited about being able to offer clients more value.
At the same time we're building new capabilities that we don't have, that they've done very well and particularly multi-currency accounts Cross Border, Trading, multi-currency Trading, Trade Finance, all of those services that a global bank like HSBC has brought to the Canadian marketplace.
We're replicating that on top of our platform. We've coded that over the last year now sits on our tech stack. And we'll make sure that the HSBC customers get the best of RBC plus the best of what they had at HSBC, when they come over. And we'll be able to offer our 15 million clients, who didn't have access through us to that -- to these multi-currency Cross Border Trade Finance services.
So trying to bring the best of both banks to each of the customer bases, as we bring it together is the strategy. When you do an in-market roll-up like we're doing obviously the number one synergy is cost. We have a very significant opportunity when you eliminate their entire hardware and software of their firm and some of their back-office operations that support that. We've articulated a high-degree of confidence in the $740 million cost synergy, on this which is roughly 60% of their existing cost base.
So I think from that perspective, we feel very short-footed about that. We planned around that. You can see when you don't need any of their hardware-software, some of their operations why you would get to that type of level. And therefore, that is a very significant synergy that helps drive the deal.
And then, we -- all those customer product synergies that I just talked about we haven't articulated what the financial benefit of that is, in our investor deck 1.5 years ago we put a zero, on that line, because we didn't need it. But you'll see us articulate more clearly, how we quantify the cross-sell and the customer penetration of all that capability.
So I think it's a wonderful deal for shareholders. It's highly accretive. It's a higher ROE deal. It's short-footed around cost and cross-sell synergies within the customer base alone. It's good for Canadians and that we're going to pay dividends in Canada versus those dividends of HSBC going to their global and largely Asian ownership base. It could be upwards of $700-plus millions of dividends into the Canadian Pension Funds and the US shareholders obviously as well will benefit from that, which is a -- that's a good part of our overall shareholder base.
So that's meaningful money into retail investors' pension funds, asset managers that gets reinvested in your economy overtime. So -- and higher taxes, you say that's good for our governments. We'll make more money and pay higher taxes domestically. So I think all that makes it good for customers good for the government and good for investors. And we're very proud of the deal, and where you can't wait to get at this in about 20 days. So, let's come at us all of a sudden, right?
Derek Neldner
It's good long process we're almost there.
Dave McKay
Almost there yes.
Derek Neldner
Dave, we're sitting here in New York. Obviously, the US has been an important part of our strategy for a long time, but probably fair to say, it's even going up in importance just given the size of the market and opportunity here. Can you share some of your thoughts on just how you think about the US opportunity for RBC?
Dave McKay
Yeah. And I'll say a few words and then turn it to yourself as well as our Head of the International Holding Company and responsible for bringing all of those businesses together. So, it's three really strong businesses in the US and the three exciting growth opportunities for each of those businesses. The capital markets business that you run, obviously is a wonderful business for us $4 billion in revenue, the ninth largest player globally, and in the United States and growing grew share both in markets and in investment banking last year, the result of investment over a number of years, particularly on the health care vertical, and the tech vertical, but all strong FIG group under Vinnie strong real estate, and energy banking practices and diversified.
So done a great job kind of building out a diversified business and you're seeing the traction that that gets. So I'm very excited about that $4 billion of revenue and $1 billion of earnings in the US with upside potential, in both sides of that equation in markets and in banking. We have probably the hidden gem in all of it is our US Wealth Management franchise, the sixth largest wealth franchise in the United States by AUA over $550 billion of AUA, alongside roughly a small institutional asset management capability of over $100 billion.
But the sixth largest distribution in every state good base of FAs and growing and the lift-out strategy for us has worked for the past six or seven years. We've built a whole new tech platform under our FAs. And therefore, we're able to cross-sell secured lending product. We have a better advisory platform and financial planning platform, and we've got very high customer satisfaction and adviser satisfaction. And the franchise is winning and growing and benefiting from a run-up in markets.
So significant opportunity to continue that growth trajectory with one of the top platforms but also to cross-sell other products into that we don't have any banking product the way Morgan Stanley would have and FX products. So we're really looking at how do we start to, horizontally add product to that customer franchise, which is low end high net worth and high-end affluent customer franchise. And in our City National franchise, which had a great seven-year run and got into trouble last year as far as deposit betas going up significantly during the March crisis and the deposit betas staying high generally for regional banks.
We have high net worth clients there. And obviously, they've moved money around and seeking yield and therefore we've had to match treasury yields and other yields and funding that book but it's grown that deposit base. It's stable through the crisis. We're quite proud of that. We have a very strong lending growth and we tripled the size of this business in the last seven years, maybe too fast. And therefore, we've got to stabilize kind of the operations base and our processes before we get to the next phase of growth. But for us the real opportunity in City National is to run this business much more efficiently and drive a much higher ROA.
We grew, but we grew less than an optimal level of profitability. Sometimes we grow for growth sake. And there's a chance to reposition the balance sheet. There's a chance to take out cost. There's a chance to run this business a lot better. And that's we think really accretive for the shareholder. So from that perspective, that's a business that can generate I think as much profitability as our Capital Markets business is generating. So those are the three businesses, but maybe you can talk about how you're tying it all together and how you're looking for synergies and how you're looking for opportunity within that business?
Derek Neldner
Sure. Thanks Dave. I'll just be really quick in the interest of time. But in addition to three great franchises as you've talked about. I think where the opportunity is for us going forward is for different reasons those businesses were all at various phases of maturation. And as a result to date they've largely run in fairly distinct silos. And I think as most of us know, there's implicit inefficiencies, when you're running things in a more siloed way.
And so four broad opportunities I see. One obviously is on the client side, how can we take these three great franchises and better connect around shared clients and whether that be referrals from our capital markets or CNB commercial franchise into the wealth network, or the other way around. Obviously, lots of opportunity between commercial small businesses, and wealth lots more we can do to connect the dots and create these flywheels on client cross-referral opportunities.
The second obviously is efficiencies. When you're effectively running three separate businesses, there's implicitly costs embedded in that that you can do without. And so I think more things we can get at to try to drive the efficiency ratio down across the US broadly.
The third is really on the investment front. But again technology is a big part of banking. When we've got different products running on different systems across these three platforms, it's not the most efficient investment structure. And so as we look to build out best-in-class product capabilities, I think there's an opportunity for us to effectively look at building or manufacturing in one spot but then using that through different client distribution channels.
And then final point I would just say you touched on earlier is just the importance of funding, and trying to simplify our structure which will give us a little more flexibility and help us optimize our funding footprint and use of deposits across the US I think is an exciting opportunity.
Dave McKay
Right. So funding long-term growth is in the US dollars is so critical to all banks particularly regionals and foreign banks.
Derek Neldner
Maybe switching past here again, Dave, but generative AI has been obviously very topical lots of dialogue. Certainly, among the financial services sector there's opportunities both on the client front and how can we better provide advice and services to our clients but also as a lever to productivity and efficiency. You've really been a thought leader on technology for decades and I know we're spending an enormous amount of time thinking about the application of AI in our business. Can you just spend a few minutes Dave and talk a little bit about how you see that opportunity? And it's difficult for investors, I think to where commercial – where's the commercialization path goal?
Dave McKay
And I think that's certainly the theme that you're hearing that we're pivoting as a as a society and a tech society that was very much the thematic and endeavors like the foundational models have already been optimized to such a huge level already that maybe within the next generation, two at the latest you will get rid of hallucinations. And therefore the accuracy and the veracity of the modeling from a foundational model basis will be really strong. And therefore the commercialization opportunity is where everybody is focused right now versus foundational model.
And therefore I think it bodes well for not just banks but all the industries we focused on commercializing large language models and there's an enormous amount of data that we've payroll through these foundational models.
Trust layers have been built and are being built and therefore, we're in a place to I think really accelerate in a much earlier stage of this technology that commercialized benefits. And they come in similar formats. I don't think you're going to find a CEO that doesn't cover off these macro pillars, but how do you get at it. You need to have organized data and how your data is organized could be a big barrier to getting after this. And a number of players haven't organized their data very well. We'll have to go through a more expensive reorganization of data and we've done that.
We've done that because we've been at these foundational in these commercialized models, whether it's reinforcement learning or machine learning or the evolution of AI, we've got over 80 PhDs in machine learning and reinforcement learning at RBC and our Borealis AI, Institute, one of the largest in Canada but in North America. We are again ranked in the top three in I think North America around our AI commercialized capability and we're two last year with three this year. So it talks to investors and people look at what we're doing. We're one of the best in the world.
So what does that mean? So getting at your data and organizing your data and getting value out of your data through the large language models in generative AI capabilities is really, really important. We've got that because of the precedents that we've invested in.
Two, then you have to marshal your business to focus on it, and get after that and integrate it into your sales force and integrate into your functional opportunities. Earliest benefits are coming in a co-pilot around coding. I've seen it myself. You're getting upwards of a 30% benefit, when you code alongside a generative AI capability and multiple languages is going to help us with some of our legacy languages like COBOL, is where we it's hard to find COBOL.
I'm a COBOL coder. That's how I started in the bank. I thought that would be in my ticket in retirement to code COBOL, because they're still around for about 60 years now. Now the machine is probably going to do that unfortunately. So I think from that perspective, the copilot, co coding, we're seeing really good benefit and the codes processing it efficiently and therefore, it's quality code and because you always worry about low quality code at the end of the day. So it's a great opportunity.
I think everybody is playing with this and how do you accelerate that and adopt that through your public and private cloud development structure. So, I think it's really important. The key is, large companies like us, will have the ability to partner with some of the market leaders today, but also develop and save money and have control over our own tech stack. So, this technology will be available to everybody. But the large companies who have a real foundational capability in AI like we do, we'll be able to build our own tech stack and build our own LLMs and integrate pieces from the outside to the end. We won't be solely reliant, on a partner.
And I've had this conversation, with a number of tech leaders including NVIDIA, and they've encouraged us to really pursue that tech stack. But – so, you'll see a hybrid for us at RBC and partnering with the Anthropic’s of the world, and the Coherus of the world and the opening eyes of the world. But at the same time, being able to build our own where it's more efficient, more operational -- greater operational control and whatnot.
The big benefit is, when you layer this on top of your own data, for the benefit of your -- ultimately your customers, but for the benefit of your employees, taking the complexity of our model and this is where we struggle. We make mistakes. We have to retrain. We have to correct. We have enormous complexity in the delivery of our products, whether it's wealth management or in the retail bank, you have turnover and therefore, you can deliver a better customer experience, a more efficient customer experience, with less cost less effort.
And therefore, that's where we're really focused right now whether it's in the contact center or in the branch, deploying these models and piloting these models for the benefit of the shareholder and the customer. So, I'm very excited about it. I think this is the real deal. This is not quite ready for prime time, but it's getting close. And I can't believe the progress that's happened, in this space in the last 12 months. I mean, it really is quite mind-boggling.
Derek Neldner
Terrific, big opportunity, but it's not going to be straightforward to capture.
Dave McKay
Yes
Derek Neldner
So, we've got one minute left, Dave. We've covered a lot. Thank you. Any, closing thoughts?
Dave McKay
I think just back to the macro, I think we're coming through this complexity. And while you can't predict all aspects of what might happen, the probability for a softer landing, I think has increased. You see that in the numbers. I think you're seeing certainly, some stress on credit in the marketplace right now, whether it's consumer unsecured or commercial real estate will probably be a big part of the themes, you'll see on stage, a week. That's the first manifestation of it. But overall, when the majority of your customers are working, at the end of the day that provides a solid backdrop.
And the other difference, I forgot to point out between Canada and the US right now is, both consumer basis and commercial basis saved roughly the same amount of deposits through the pandemic $3.5 trillion in the United States, $350 billion one-tenth in Canada, one-tenth of the economy, because the US consumer was more confident and weren't repricing their mortgages, they've gone and spent most of that. Well, that's $3.5 trillion as you know is, down to about $0.5 billion and that's been highly stimulative to the US economy.
In contrast, the Canadian consumer has not spent that, concern about their mortgage concerned about their finances, a more conservative approach, that $350 billion is largely intact not spread evenly through the population, it's more concentrated in the top 60%, but still available for one of three things: One, to mitigate against higher credit or higher payments and therefore, as a buffer to credit; two, when rates do start to come down, it's savings $350 billion or 15% of GDP is there to purchase and consume and stimulate growth in the economy; and three, migration into equities and into other investment products. So I'm not sure the split of that. It will depend on how the economy is doing and the pace of our rate decline.
But again, that's a significant opportunity for banks to capture and the economy to capture that savings that has not yet, been spent in the Canadian economy. And obviously, something the Central Bank has to think about as inflation comes down, will this nudge inflation up at a bit of a spike away potentially. It depends on how that flows. So, again, another variable that we're tracking. So net-net, I think a pretty decent backdrop to the next two or three days.
Derek Neldner
Terrific. Well those are great comments to set up the dialogue over the next two days. So, Dave thank you for taking the time to be here. Really appreciate it.
Dave McKay
Thanks.
Derek Neldner
And thank all of you. Hopefully, a good series of sessions, over today and tomorrow.
Dave McKay
Have a good conference thank you.