Canadian bank stocks, along with many other Canadian equities, have shown some volatility recently as investors await the Oct. 30 referendum on independence for Quebec.

Fears of the economic consequences of secession pulled Canadian bank stocks sharply lower on Monday, when a poll indicated the "yes" votes might be in the majority. As the week progressed, however, the stocks stabilized.

"Right now, whoever's in the market is still thinking the vote will be 'no,' said an equity analyst. "In the event it is a 'yes,' a lot of people might change their mind about banks."

Analysts generally said that a "yes" vote would hurt banks by sending the economy into a recession, raising interest rates and severely retarding loan growth. In addition, depositors might suddenly withdraw their money from the banks, seeking a safer harbor and increasing the cost of funds for the banks.

"If we're going to have the country breaking up, it'd be bad news for the bond market, and the economy could go into a recession," said Hugh M. Brown of Nesbitt Burns.

Mr. Brown said the performance of the big Canadian banks, which derive 75% of their core earnings within the country, is closely tied to the overall national economy.

"The simplest way of putting it is that Canadian banks are Canada," he said. "If the country's in trouble, so are the large national banks."

As a result, Mr. Brown said, the underlying creditworthiness of the banks is tied to that of the Canadian government.

To be sure, Mr. Brown said the province of Quebec in and of itself does not represent a significant portion of Canadian bank assets.

Quebec represents only 12% of the global business mix of most Canadian banks. "Technically, it's not that big a part of their business, and could be handled with a separate Quebec," said Mr. Brown.

Nonetheless, the issue remains a "macro" one for the banks, he said, and could result in questions from the rating agencies.

Analysts generally remained skeptical that the referendum would pass, and suggested a "no" vote could send banks and other Canadian stocks higher.

The "no" vote would remove the political uncertainty that has prompted many businesses to postpone investment decisions, said Scott MacDonald, a sovereign-country analyst at Donaldson, Lufkin & Jenrette.

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