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Bank towers are shown from Bay Street in Toronto's financial district.Adrien Veczan/The Canadian Press

Moody's Investors Service is concerned about Canadian banks, but investors should relax: Every dip is a buying opportunity.

The credit-rating agency downgraded its long-term ratings for the Big Six banks, arguing that they face a challenging operating environment this year.

The report picked at two raw nerves: Surging Canadian house prices and indebted consumers pose a threat to bank asset quality and profitability if there is an economic downturn.

As Moody's analyst David Beattie put it: "Continued growth in Canadian consumer debt and elevated housing prices leaves consumers, and Canadian banks, more vulnerable to downside risks facing the Canadian economy than in the past."

Bank stocks fell more than 1 per cent on Thursday, reflecting the downgrade and the fact that markets were already on edge over two other setbacks that could hit the banks.

The price of crude oil recently fell back below $50 (U.S.) a barrel, re-awakening concerns about bank loans to energy companies.

More importantly, bank stocks have been pricing in concerns that Home Capital Group Inc., the struggling mortgage lender specializing in non-prime loans, could fail and lead to contagion within the broader financial sector.

Over the past two months, the average bank stock has fallen about 8 per cent, offering a stark reminder that these profit-gushers are indeed vulnerable to a lot of moving parts in the Canadian economy. The report from Moody's confirms this vulnerability.

But rather than trying to time a swift exit from bank stocks in anticipation of a great buying opportunity ahead, it's better to stay put: Canada's big banks have an amazing ability to get through difficult times, reflecting their well-run, profitable and diversified businesses.

Take housing corrections. The last time mortgage delinquencies spiked in Canada was in the early 1990s, when arrears rose above 0.65 per cent of total mortgages in 1992, up from less than 0.2 per cent in 1990.

Bank stocks didn't perform well during this period. Royal Bank of Canada's share price fell 23 per cent in 1992. Toronto-Dominion Bank fell 35 per cent between 1989 and 1993. Neither bank raised its quarterly dividend for several years during this difficult stretch.

However, if you stayed put, you did fine. Even buying RBC shares at their 1989 peak – absurdly bad market timing – would have given you a return of more than 12 per cent by 1992 and 30 per cent by 1996.

Holding RBC shares for 10 years would have given you a gain of 150 per cent – or nearly 270 per cent with dividends (increases kicked in by the mid-1990s), which is about double the return for the benchmark index over the same 10-year period.

This raises another point: Even if you are concerned about bank stocks and their exposure to housing and consumer debt, are they more vulnerable to a downturn than the S&P/TSX composite index?

Probably not. The Big Six account for more than 22 per cent of the S&P/TSX composite index, in terms of their combined weightings. That gives these six stocks a huge influence over the broader market. Where the banks go, the index will follow.

Also, it is unlikely the banks can suffer a downturn without a large number of other economically sensitive stocks also suffering. In other words, if you're tempted to sell your bank stocks, you have to wonder about the rest of your holdings, too.

The better option? Stay put. Even during the financial crisis, when bank stocks fell nearly 60 per cent by early 2009, they had recovered to new highs by 2011. That was three years ahead of the benchmark index reaching a new high.

More impressively, bank stocks are now 45 per cent above their pre-crisis high in May, 2007, or nearly 120 per cent with dividends. Compare that to the plodding index, which is just 3 per cent above its pre-crisis high.

The dip in bank stocks should be embraced. And if there's a deeper dip ahead, embrace it some more.

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Personal finance columnist Rob Carrick shares a positive note about the rising housing market in large Canadian cities like Toronto.

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