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Reputation: Sentiment Can Become Reality

C. HUYGENS - Friday, May 26, 2017
Financial services is a lot about confidence—if there are any cracks, it can result in contagion.

The back story: Home Capital (TSE:HCG) experienced a run on the bank, more formally known as a liquidity “issue.” Dave McKay, CEO of Royal Bank of Canada told the Financial Times, “There wasn’t a credit reason to drive the liquidity challenges that Home Capital faced, but more a lack of confidence.”

It is an explanation, but not necessarily a source of reassurance.

“I don’t think you can conclude that even though they [Home Capital] are 1 per cent of the market, it won’t have an impact,” said James Shanahan, analyst at Edward Jones. “The problem is that sentiment can become reality. Financial services is a lot about confidence. If there are any cracks in confidence, it can result in contagion."

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