Friday, July 03, 2009

Instead of Adopting Canadian-style Health Care, How About Learning from Its Banking System?

USA TODAY -- Our northern neighbor sometimes seems so similar to the United States that it's hard to tell where the USA ends and Canada begins. Here's one way: Canada is the place with healthy banks, taxpayers unscathed by megabillion-dollar bailouts and no need to overhaul financial regulation because it was done right the first time.

As U.S. officials scramble to prevent a crisis sequel, the ability of Canadian banks to navigate the current financial storm is earning global plaudits. The World Economic Forum in October ranked the country's financial institutions No. 1 in the world for solvency. U.S. banks came in 40th, two rungs behind Botswana.

7 Comments:

At 7/03/2009 11:36 AM, Anonymous Anonymous said...

Careful what you wish for here. Every bank we have in Canada is "too big to fail". Canadians are very smug about the banking system, but we only entered recession late last year. Banks here haven't yet dealt with rising delinquencies and/or foreclosures. Just think of all the banking systems that have been considered the "best in the world" only to run smack into a crisis of their own.

 
At 7/03/2009 11:37 AM, Anonymous Anonymous said...

oh yeah, notice that Sweden is 2nd. whole system was nationalized less than 20 years ago. These things, like the markets, fluctuate.

 
At 7/03/2009 6:21 PM, Blogger QT said...

Anon.,

Canada is just not seeing the kind of housing meltdown as the U.S. Delinquencies are certainly up on various forms of household debt which is what one would expect in a recession.

The credit crisis is being driving by the write down of complex securitized instruments which are difficult to evaluate (ie. leverage) not just defaults/foreclosures.

 
At 7/03/2009 11:15 PM, Anonymous Anonymous said...

I read some where that the Swedes are considering charging for savings account deposits to encourage spending and investment. It's hard enough getting a decent return but to charge for deposits is wrong. I hope American banks don't imitate this practice.

 
At 7/03/2009 11:25 PM, Blogger randian said...

A big reason Candian banks are healthy is because they have real national banks. The legacy of enforced one-state restrictions on US banks is still felt even now. Aside from financial issues, "national" US banks aren't really national. For example, I tried to deposit money into a friend's Bank of America account Thursday. The account was opened in California, and I'm in Florida. The first thing the teller told me is "we don't have access to California account numbers". WTF? I thought BofA was everywhere! I was eventually able to do it, but it took 20 minutes and special paperwork to get it done. No business would arrange its affairs in such a stupid fashion were government regulation not involved.

 
At 7/03/2009 11:45 PM, Blogger QT said...

Randian,

Excellent point.

One also notes that Canada does not have anything comparable to the opportunities for financing and risk capital available in the U.S. In the current financial crisis, this has turned out to be an advantage. The rest of the time, however, the lack of access to capital weighs on growth and investment.

 
At 7/04/2009 8:11 AM, Blogger Mitch said...

The reason is that the real estate markets are different. You don't have 30 year fixed mortgages in Canada - you have 30 year amort/5 year term mortgages. As a result - revenue for banks is on the spread, not the refi/underwriting fees.

Second - you don't have the tax subsidy for home ownership in Canada (deductions for property taxes and mortgage interest) - so the market doesn't get a frothy as a whole.

Third - because the Canadian banks are too big to fail - they are treated as quasi public utilities.

So it is a combination of factors that is making the Canadian system sounder right now - but not necessarily better.

 

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