The Canadian Banking Fallacy

 By Peter Boone and Simon Johnson

As a serious financial reform debate heats up in the Senate, defenders of the new banking status quo in the United States today – more highly concentrated than before 2008, with six megabanks implicitly deemed “too big to fail” – often lead with the argument, “Canada has only five big banks and there was no crisis.”  The implication is clear: We should embrace concentrated megabanks and even go further down the route; if the Canadians can do it safely, so can we.

It is true that during 2008 four of all Canada’s major banks managed to earn a profit, all five were profitable in 2009, and none required an explicit taxpayer bailout.  In fact, there were no bank collapses in Canada even during the Great Depression, and in recent years there have only been two small bank failures in the entire country. 

Advocates for a Canadian-type banking system argue this success is the outcome of industry structure and strong regulation.  The CEOs of Canada’s five banks work literally within a few hundred meters of each other in downtown Toronto.  This makes it easy to monitor banks.  They also have smart-sounding requirements imposed by the government:  if you take out a loan over 80% of a home’s value, then you must take out mortgage insurance.  The banks were required to keep at least 7% tier one capital, and they had a leverage restriction so that total assets relative to equity (and capital) was limited.

But is it really true that such constraints necessarily make banks safer, even in Canada? 

Despite supposedly tougher regulation and similar leverage limits on paper, Canadian banks were actually significantly more leveraged – and therefore more risky – than well-run American commercial banks.  For example JP Morgan was 13 times leveraged at the end of 2008, and Wells Fargo was 11 times leveraged.  Canada’s five largest banks averaged 19 times leveraged, with the largest bank, Royal Bank of Canada, 23 times leveraged.   It is a similar story for tier one capital (with a higher number being safer):  JP Morgan had 10.9% percent at end 2008 while Royal Bank of Canada had just 9% percent.  JP Morgan and other US banks also typically had more tangible common equity – another measure of the buffer against losses – than did Canadian Banks. 

If Canadian banks were more leveraged and less capitalized, did something else make their assets safer?  The answer is yes – guarantees provided by the government of Canada.  Today over half of Canadian mortgages are effectively guaranteed by the government, with banks paying a low price to insure the mortgages.  Virtually all mortgages where the loan to value ratio is greater than 80% are guaranteed indirectly or directly by the Canadian Mortgage and Housing Corporation (i.e., the government takes the risk of the riskiest assets – nice deal if you can get it).  The system works well for banks; they originate mortgages, then pass on the risk to government agencies.  The US, of course, had Fannie Mae and Freddie Mac, but lending standards slipped and those agencies could not resist a plunge into assets more risky than prime mortgages.  Let’s see how long Canada resists that temptation.

The other systemic strength of the Canadian system is camaraderie between the regulators, the Bank of Canada, and the individual banks.  This oligopoly means banks can make profits in rough times – they can charge higher prices to customers and can raise funds more cheaply, in part due to the knowledge that no politician would dare bankrupt them.  During the height of the crisis in February 2009, the CEO of Toronto Dominion Bank brazenly pitched investors: “Maybe not explicitly, but what are the chances that TD Bank is not going to be bailed out if it did something stupid?”  In other words:  don’t bother looking at how dumb or smart we are, the Canadian government is there to make sure creditors never lose a cent. With such ready access to taxpayer bailouts, Canadian banks need little capital, they naturally make large profit margins, and they can raise money even if they act badly.    

Proposing a Canadian-type model to create stability in the U.S. is, to be blunt, nonsense.  We would need to merge our banks into even fewer banking giants, and then re-inflate Fannie Mae and Freddie Mac to guarantee some of the riskiest parts of the bank’s portfolios.  With our handful of new “hyper megabanks”, we’d have to count on our political system to prevent our banks from going wild; Canada may be able to do this (in our view, the jury is still out), but what are the odds this would work in Washington?  This would require an enormous leap of faith in our regulatory system immediately after it managed to fail repeatedly and spectacularly over thirty years (see 13 Bankers, out next week, for the awful details).  Who can be confident our powerful corporate lobbies, hired politicians, and captured regulators can become so Canadian so soon?

The stakes would be even greater with these mega banks. When such large banks collapse they can take down the finances of entire nations.  We don’t need to look far to see how “Canadian-type systems” eventually fail.  Britain’s largest bank, the Royal Bank of Scotland, grew to control assets equal to around 1.7 times British GDP before it spectacularly fell apart and required near complete nationalization in 2008-09.  In Ireland the three largest banks’ assets combined reached roughly 2.5 times GDP before they collapsed.  Today all the major Canadian banks have ambitious international expansion plans – let’s see how long their historically safe system survives the new hubris of its managers.

There’s no doubt that during the coming months many people will advocate some form of a Canadian banking system in America.  Our largest banks and their lobbyists on Capitol Hill will love the idea.  For some desperate politicians it may become a miracle drug:  a new “safer” system that will lend to homeowners and provide financing to Washington, while permitting politicians and regulators to avoid tough steps.  Let’s hope this elixir doesn’t gain traction; smaller banks with a lot more capital – and able to fail when they act stupid – are what U.S. citizens and taxpayers really need.  

An edited version of this post appeared on the NYT’s Economix this morning; it is used here with permission.  If you wish to reproduce the entire post, please contact the New York Times.

155 thoughts on “The Canadian Banking Fallacy

  1. I admit to having “bought into” that Canadian banking fallacy. I guess I didn’t have enough knowledge to make a proper judgement. It is STILL hard to fathom how Canada generally escaped the problems that both America and Europe were having with banks and debt. It seemed they must be doing something very good (with their system) to avoid it.

    Oh, could I have been wrong??? ME wrong??? Impossible…. the thought of me being wrong is nauseating in of itself. Give me some time here and I’ll come up with a proper rationalization for this….

  2. I think it’s actually pretty simple:

    Canadians are generally smarter and more ethical than Americans.

    The Canadian banks were run by Canadians.

    Canadian regulators were Canadian.

    When Scotiabank tried to start giving out subprime mortgages, the regulators came in (with no legislative authority) and told them not to do it – and they didn’t. Simple.

    That would never happen in America. Someone would be crying about their precious “rights” being trampled. Big babies…

  3. This article begs the question raised by implication in Ted K’s comment: Why didn’t things go so badly for Canadian Banks?

    The comparisons made by Mssrs. Boone & Johnson obviously don’t tell the whole story. *My* jury is still out on this article until some sense of completeness, balance and objectivity is restored to the analysis. I’m surprised to be confronted with such shallow and seemingly slanted analysis from such purported eminence.

  4. “Canadian banks were actually significantly more leveraged – and therefore more risky – than well-run American commercial banks. For example JP Morgan was 13 times leveraged at the end of 2008, and Wells Fargo was 11 times leveraged. Canada’s five largest banks averaged 19 times leveraged”…both were and are far more leveraged than 19x vast amounts of derivative exposure is netted eg if you recieve swaps the only balance sheet entry is the NPV of the swap even though economically it is identical to leveraging up to buy a bond.

  5. False premise, comparing leverage

    Canadian banks did not cook the books,
    Add in the scam of off balance sheet manipulation by US banks to get a better picture.

  6. You raise issues that I, as a Canadian, have been concerned with for some time. There is an awfully cozy relationship between bankers, regulators and government and a lot of secrecy. High leverage coupled with the prospect of foreign misadventures (see CIBC as an example of serial flameouts) or even domestic ones leave the taxpayer dangerously exposed.

    Through coordinated effort, authorities managed to re-ignite the housing market (in my view a bubble) perhaps for the last time, and have induced the public to leverage up. As a result defaults and loan losses have been minimized, and it then appears that the banking system was fundamentally sound when in fact they were saved. It would be interesting to observe the effect on the banking system and public finances if Canada were to experience a U.S. style housing collapse. I don’t think we will need to wait too long for this natural experiment to occur.

  7. One thing CMHC mortgage insurance allows is the general standardization of mortgage standards across the country. Now, CMHC can make mistakes too, but there is no denying that mortgage standards in Canada never reached the excesses seen in the US.

    My own view is that the system in Canada works – but that Banks generally make out like bandits as a result. Even tighter leverage requirements might be an answer, or perhaps a wiindfall tax for ROE in excess of say, 12%.

    In any case, I agree it would be virtually impossible to re-create a similar system in the US. Just look at the healthcare!

  8. Historically, proposed Canadian bank mergers have been iced by the Federal Government as regulator. So what do they do? They buy up smaller foreign regional banks. No, America, do not follow the path of Canadian “banksters”.

  9. One difference between mortgages is that in Canada you cannot pre pay without a penalty. This makes valuing a mortgage backed security much easier because there is no pre payment problem. The securities are less volatile and it makes the credit market for housing less choppy.

  10. How much of their lending was sub-prime/alt-a,liar, etc.? How long do their mortgages typically last? Did their banks cook the books? Who is the Canadian Goldman-Sachs? The Canadian AIG?

  11. The fundamental comparison is between hypercompetition, and neo-corporatism. We have yet to see who wins on the global stage… Unfortunately, the contest is marred by country specifics.

    With regard to Canada:

    1) Nick Rowe has pointed out that Canada suffered from less housing price inflation, and one of the primary theories is that Canada doesn’t allow cash out refis for over 80% of the home value. Interestingly, neither does Texas (for the most part), and Texas was one of the last states to go into recession.

    2) Canada’s economy has been a commodity export led economy, and all of those economies have weathered the recession better than service-led economies. Observe Australia and Norway, as well.

    3) Quite frankly, the political attitude toward regulation in Canada is different. I don’t know how any institutional regulator could survive the political culture of the US from 1980-2008. The vitriolic hatred of anything-D.C. Nor do I know how to quantify the role of ideology/culture on institutional outcomes, except through narrative storytelling.

    Even today, many argue the problem in the US was over-regulation, not under-regulation. Finance may be telling us that “hybrid” regulatory systems are inherently unstable – vulnerable to being chipped away quietly and arbitraged through innovation. The remove-all-regulation folks may have found a system that works (though I doubt it), and the more regulation folks likewise, but the current system is one that pretended to de-regulate, but in fact only de-regulated aspects of the system that favored managerial gains at banks.

    And, deeply, the economist who justified all of this still believe – after 2 years of enduring outrage – that the system is mostly perfect and merely needs some tweaking.

  12. This analysis of the Canadian banking system is highly disappointing. After following your arguments for several months now, I have been looking forward to how you would handle the
    Canada question. This response, however, fails to address some of more important questions raised on this issue. For example, one story often given for the robust nature of the Canadian banking system is its extensive branch banking system. This is an important point since branch banking allows for greater asset diversification as well as the ability to pull reserves from one bank to another branch if needed. This makes banks more resilient to negative economic shocks. It also provides an explanation for the long history of bank stability in Canada. Of course, extensive branch banking implies bigger banks which goes against your argument.

    Also, the replies in the post above are far from convincing. Telling me Canadian banks have more leverage is meaningless since most of the problems were off-balance sheet. And I suspect there were more abuses with this in the US than Canada. This repsonse also fails to shed light on why the Canadian system did so much better over the past century. Saying that the government guarantees half of Canadian mortgages also seems off point to me. As others have noted, the banking practices are far more conservative in Canadian. In addition to the example Statsguy gives, most (if not all) Canadian mortgages are full recourse loans. This makes a world of difference for government guarantees.

    I really want to see why you think your approach makes sense in light of the Canadian banking system. Please do another post where address the questions raised about the Canadian system.

  13. Is Canada’s Banking System Really So Smart?

    … Canada’s bankers have shown themselves capable of blowing their brains out with the best of them. Had they been permitted to merge some years ago as they intended, the better to compete in foreign markets, they might have spent the last decade following the global herd to disaster.”

    Mr. Johnson wrote:

    The Canadian Banking Fallacy

    “Canadian banks were actually significantly more leveraged – and therefore more risky – than well-run American commercial banks. For example JP Morgan was 13 times leveraged at the end of 2008, and Wells Fargo was 11 times leveraged. Canada’s five largest banks averaged 19 times leveraged, with the largest bank, Royal Bank of Canada, 23 times leveraged.”

    Canadian banks are typically leveraged at 18 to 1–compared with U.S. banks at 26 to 1.

    Feb 7, 2009 – Newsweek – excerpt

    “So what accounts for the genius of the Canadians? Common sense. Over the past 15 years, as the United States and Europe loosened regulations on their financial industries, the Canadians refused to follow suit, seeing the old rules as useful shock absorbers.

    Canadian banks are typically leveraged at 18 to 1—compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1. Partly this reflects Canada’s more risk-averse business culture, but it is also a product of old-fashioned rules on banking.

    In addition, home loans in the United States are “non-recourse,” which basically means that if you go belly up on a bad mortgage, it’s mostly the bank’s problem. In Canada, it’s yours. ”

  14. When you look at leverage it isn’t enought just to look at some measure of assets (including off balance sheet) to equity it is the quality of the assets. If you had $100 of subprime mortgages against $5 of equity that is very different thatn having $100 of a CDO comprised of BBB tranches from a subprime CMBS.

    The other market that can come up – and one where the arguments around less of a housing bubble hold less water – is Australia, which has similar level of oligopoly (actually you have big 4 not big 6 like Canada), implicit government support. And also held up well so far (though you may argue the housing bubble has yet to pop in Australia which may be a fair point).

    In short I think there is a theory that if you are in an oligopolistic market, you can earn superior returns on capital (less competition and all that). In turn having oligopolistic pricing power means there is an implicit bargain that overall profitability can’t get too high, else you would invite more heavy-handed and ham-fisted regulation (this is certainly charecteristic of the Australian market where record profit announcements are made apologetically). Since their banks serve less as publicly traded hedge funds (eg Goldman) and more like a quasi regulated utility they don’t get too far into the hedge fund side of the business which caused the problems.

    I also think that you have to look at liquidity, which was the problem for the likes of Lehman and Bear which is that in Canada and Australia my assumption (and I haven’t googled the facts) are that bank deposits account for a larger part of household and corporate savings than in the US. Sure you may move from CIBC to TD but the money is in the system. The US banks relied much more heavily on confidence sensitive funding (eg all those SIV’s) – not that the Canadian’s didn’t but not to the same degree.

  15. Inconvenient truth: If Canadian banks where MORE leveraged, and leverage is bad, then why didn’t they blow-up and US and European banks did?

    Not only is this piece not satisfying, it’s trite. My respect for Simon has been serious eroded. If his other opinions are as ill informed as this piece is, then I have to seriously reconsider my agreement with his other positions.

    This piece is cherry picking factoids in an attempt to create a rhetorically compelling argument supporting Simon’s position vis a vis breaking-up big banks while ignoring the evidence.

    There may be good reasons why the US and other may not want to follow what we do here in Canada, but this article certainly doesn’t provide insight into what those reasons may be.

  16. This analysis brings up several counter arguments regarding the Canadian system that are interesting, and also contrast sharply from points of view indicated by others.

    A couple of points here that make sense are 1) what you are looking at with any particular bank is risk or chance of failure, and Canadian banks may not have been hit yet, but particularly as they go global, one day a Canadian bank may collapse 2) What does Canada do if one of their banks does essentially hit a road bump? How would they handle it? Would they be in a position of bank or banks too big to rescue?

    Also, in terms of leverage, it is not total leverage that I worry so much about, but about systemic leverage. That is the leverage that when one (or more) bank falters, it puts serious strain on the entire financial system. I am wondering if that is not the difference with the Canadian banks, that they did not buy into financial instruments that failed systemically in the US. How did they manage to firewall this?

    Also, I must agree that no one should count on that always being the case if the regulators are co-opted into the potential hubris of big banks.


  17. If Canadian banks had facilitated a housing bubble and owned a lot of superleveraged derviatives that were blowing up, they would have gone bankrupt just like the US banks that did.

    Would a cozy relationship between the Canadian govt. / regulators and Canadian banks have changed that?

  18. Price of housing to rent (175% of long term average in Canada, roughly 110% in USA), price of housing to income (125% in Canada, below 100% in USA)are bad in Canada, as we speak.

    As several commenters pointed out, talking about leverage without considering the “off balance sheet” items is silly. Jamie Dimon has 80 trillion dollars of derivatives (much more than world GDP), making Barack Obama weirdly proud (“I could never manage this!”). It is against that JP Morgan leverage ought to be computed.

    The problem is not just Too Big To Fail, but also Too Big, TOO Failed.

    The proximal cause of system breaking down was not directly because mortgages were poorly serviced, but because derivatives’ bet relative to the mortgage market went bad, and the huge non provisioned leverage did the rest.

  19. There really are two questions –

    1) Why the Canadian system seems to have worked for Canada…

    2) Whether the Canadian system would work in the US…

    The latter question seems to get ignored in the whole debate about whether industry concentration is good / bad / not important.

    On the issue of leverage – even leaving aside off-balance sheet assets, there’s the question of asset quality, and whether or not this can be measured by regulators. The argument in the US is the regulators failed and the ratings agencies failed, therefore asset quality cannot be regulated – banks are just too smart.

    Of course the regulators were deliberately handcuffed politically, and ratings agencies have lousy incentives. In SJ/JKs argument, it’s important to distinguish between the economic (moral hazard) argument, and the political (direct capture) argument. The former may prove unconvincing even while the political argument (the Atlantic article) is compelling. The key challenge that is emerging to the political argument is that much of the pressure against regulation was from local/regional banks (hence, Baseline’s confusion over the positions taken by the Chambers of Commerce).

  20. There is a big issue that you need to address, and you don’t seem to have addressed it. Maybe your book does.

    Suppose Ireland, Iceland, Canada, and the US broke up their banks into thousands of itty-bitty banks. No monopoly power, no oligarchy, no silent coup.

    But suppose aggregate bank deposits still amounted to, say, 300% of GDP. Is that okay just because each individual bank is small?

    The experience of the US (1929-33, 1989-92) is that plenty of small banks can fail on a regular basis and can cause huge disruptions.

    It seems that the real issue is the size of the banking system relative to the economy, not so much the size of the individual banks.

  21. “In short I think there is a theory that if you are in an oligopolistic market, you can earn superior returns on capital (less competition and all that).”

    It’s hard to see evidence that Canadian mortgage rates are really much (at all?) higher… last I checked, the rates on the 5 year fixed were pretty similar. Whence the “efficiency” gains from the extra competition in the US?

  22. I’ll add a few points which are worth consideration when comparing the US Canada housing markets

    In Canada, no mortgage deductability and primary residences are capital gains free. This makes the remortgage game less favourable for Canadians. Most importantly, no cap gains and a high tax on labour, this has created a culture of home ownership as an inflation hedged retirement fund. Also, municipal taxes tend to be much less than the US. EX a 1.2 million house in Vancouver would be around $5200/ yr. as taxes are collected through other means. Not to suggest that Canada can’t be overpriced but the comparison is just not so obvious.

  23. Also, Canada does not have a tax free muni bond market. This encourages Cap gains free home ownership.

  24. They nailed it with CMHC. That is the main difference between our banking systems. Where are US banks losing most of their money?? On mortgages, stupid!!!

    Why are banks so confident in Canada?? Because CMHC mortgage insurance (which has grow exponentially in usage) protects them from losses. And yes, it’s a really great system when house prices go up. But just wait till this joke of a bubble (in the middle of a terrible recession no less) goes pop. The banks in Canada originate the mortgages yet don’t carry the risk of the mortgage..can you say conflict of interest??

    It’s really so so stupid and it will cost Canadians alot of money down the road. But in the meantime, bask in the glory of the best banking system in the world.

  25. Um, so the argument is that Canada’s banks did better because there is more moral hazard?

    While some may speculate that the Canadian government might bail out a failing bank, there is certainly no track record of bank bailouts in Canada as there is the US. There has unquestionably been more discipline with respect to mortgage terms (and in fact these have been tightened up just recently for insured mortgages).

    Also, it seems to me that one can’t compare leverage without evaluating the riskiness of a) the assets the leverage is used to purchase and b) the riskiness of other elements of the capital structure.

  26. Maybe Simon dropped the ball this time because he is so extremely concerned about where the US system is heading, and fears the “Canadian argument” will be used to further entrench the problems in the US. And its proponents would push the argument without much regard for the objective truth of what is going on in Canada. Simon is arguing against their argument. But still, I agree with Patrick. Not satisfying, and my respect is eroded.

  27. Mar. 23, 2010 – Globe & Mail

    “Canada’s recovery continues to outpace developed countries around the world with housing prices in the fourth quarter up 19 per cent year over year. The strong performance has carried through into 2010, with sales in the first two months just slightly behind the near-record levels seen in late 2009…Average prices are forecast to increase about 8 per cent to a record $345,000…”

  28. This is a disappointing analysis. As pointed out by others, it ignores many differences: non-deductibility for income tax purposess of interest paid on home mortgage & loan recourse.

    Bank ownership regulation is another one — the widely held rule. Board and management can thus focus on maximizing dividend yield.

    I should be clear that CHMC insurance is not cheap and that insurance costs must be absorbed by borrowers themselves. A state-owned company, CHMC is certainly fully backed by the Government of Canada. But it has been a considerable source of income for its shareholder.

    As important as the mortgage business is for big 5, it should not be overplayed either. They compete with smaller banks and credit unions. In Quebec, the second largest market, credit unions alone account for 50% or more of the commercial and household mortgage markets. A regional bank comes in second position.

    The Canadian system, IMHO, is not exportable to the US. The ownership rule, recourse and income tax deductibility would seem to prevent this. But it sure proved to be quite resilient in shielding banks from the possible contagion of mortgage market extraordinary deterioration in the US.

    Is it costly? Yes. But as most Canadians private and public retirement plans depend considerably on the performance of Canadian banks, one could argue that these costs are turned into “money in the bank.”

  29. They did bail out a large credit union when it failed due to executive errors here in New Brunswick two or three years ago — and then immediately enacted regulations to prevent such mismanagment from happening again. But with a big bank I am not sure what would have happened.

  30. Discussion of mortgage insurance in Canada on this blog is severely uninformed. Canada requires low equity mortgages to be insured. CMHC is government backed but only one player in the mortgage insurance business. GE Capital and others also insure in this market.

    Also, to remark that banking stability is assisted by Canadian banks being ‘wink-and-nod’ backed by the government without comparing US implicit backing adds nothing.

    My feeling is that non-deductability of mortgage interest and full recourse loans help create an attitude among Canadian homeowners that made mortgage-your-house-to-the-hilt schemes unattractive.

    Fundamentally, everyone in the US knew that housing-debt was a ponzi-scheme and pretended not to notice.

  31. I cannot comment fully on the Canadian system of banking as l am a UK citizen but l have been involved in the financial industry most of my life, so here is my overview.

    Firstly if we do not stem the tide of allowing banks to become to big to fail we run the risk of more global crisis`s like the one we have just had, but more severe each time. As the investment market has been allowed to become able to police itself we as investors are led down the path of putting our money in their hands and relying on their so-called expertise. Over the past 10 years their judgement has become flawed by their own greed that has clouded their judgement by the fact of the way they have structured their investment banking rules, in favour of themselves and not their customers.

    Thank you for allowing me to comment on this site. Regards, Ian

  32. I also find the explanation here — really more a lack of explanation beyond “just you wait!” — to be unsatisfying and unconvincing. (Though I understand the motive: avoid cherry-picked aspects of Canadian banking being used as justification for stupid practices here.)

    Some of the commenters point toward more compelling explanations, though many of them boil down to “Canadians are more responsible and prudent,” which may be true but would be tricky to institutionalize.

    Just compiling insightful comments here for my own benefit and perhaps others’, hoping someone could put together something more cogent.

    Rob: “Canadians are generally smarter and more ethical than Americans.”

    WR: “Canadian banks did not cook the books,”

    Hurricane: “One thing CMHC mortgage insurance allows is the general standardization of mortgage standards … mortgage standards in Canada never reached the excesses seen in the US.”

    StatsGuy: “Canada doesn’t allow cash out refis for over 80% of the home value. Interestingly, neither does Texas (for the most part), and Texas was one of the last states to go into recession.”

    David Beckworth: “most of the problems were off-balance sheet. And I suspect there were more abuses with this in the US than Canada.”

    Scott: “Since [Australia’s] banks serve less as publicly traded hedge funds (eg Goldman) and more like a quasi regulated utility they don’t get too far into the hedge fund side of the business which caused the problems.”

    B.B.: “It seems that the real issue is the size of the banking system relative to the economy”

    Franco: “Bank ownership regulation is another one — the widely held rule.”

    WR: “In Canada, no mortgage deductability and primary residences are capital gains free. This makes the remortgage game less favourable for Canadians. Most importantly, no cap gains and a high tax on labour, this has created a culture of home ownership as an inflation hedged retirement fund. Also, municipal taxes tend to be much less than the US. … taxes are collected through other means. … Also, Canada does not have a tax free muni bond market. This encourages Cap gains free home ownership.”

  33. Canadian economy is not a service based economy
    so they don’t need MBAs creating fancy bubbles.
    As long as they can sell their timber, minerals, tar sands,
    they will be fine. They keep sending their best and brightest
    to America which is not good either.

    There was a investment scandal that CBC covered in 2008.
    But canada does have the same accounting, rating agency scandals.
    Just that their population is small so it is not showing up in America.

  34. “2) Canada’s economy has been a commodity export led economy, and all of those economies have weathered the recession better than service-led economies. Observe Australia and Norway, as well.”

    So does Canada, Australia, and Norway have smaller trade deficits with china and other low wage countries?

    With china mostly wanting to own “risk free” debt, does a smaller trade deficit with china mean less debt to issue to them?

  35. Oh children, really. Simon can answer for himself but in the meantime I would remind you that Paul Volker, Simon Johnson and others are advocating for more, smaller banks not fewer, larger banks.

  36. I think so but not like the US bailouts. The credit union does still exist I believe, so some kind of help was given.

  37. We dig them out of the snowbanks in May, thoughtbasket.

    Actually, I wonder if the winters do affect the national banking policies . .

    A while back the country was enraged at the prime minister (Mulroney, for joining us to NAFTA) and the pollsters conducted a survey to learn just how angry we were. Not “approve or disapprove” questions. Just this: “If Mulroney were stranded on a highway in a blizzard and asking for a ride, would you pick him up?” The answer was a big fat NO — and in Canada you can’t get madder than that.

  38. Here’s a link to a 2006 article that shows what I think is the most important difference between the two banking systems:

    David Dodge, governor of the Bank of Canada at the time, spoke out publicly and forcefully against any loosening of mortgage lending standards. CMHC backed off on their plans to offer interest-only loans or extend amortizations to 35 years. Sounds pretty straightforward to me – our regulators did their jobs.

  39. 1. In Canada, mortgage interest is not tax deductible, hence much lower level of refinancing and “mortaging up” activities.
    2. The banks keep most of the mortgages on their books, in stead of packaging them as structured finanical products, thus more due diligence. There is a federal mortgage insurance outfit (CMHC) to insure high ratio (5% – 20% down payment) mortgage and that could become problematic later when the housing market takes a down turn.
    3. Less incentive for bankers to gamble; even bank CEOs only make $10M or so a year. More oversight on their traders so as to avoid the Nick Leeson (Baring)type of event.
    4. They did have some problems (only 10s of billions) with Asset Back Securities (ABCP) that were packaged and traded by small investment banks and that eventually blew up. A judicial/negotiated process eventually forced the settlement….
    5. The “Quants” never get much footing in Canada. By nature, Canadians are more conservative and thus always assume the fat tails and therefore did not take undue risks.
    6. They simply are structured to gamble less, focusing more on retail/commerical banking rather than on investment banking, trading and structured products.
    7. Again, less incentive (reward structure, oversight…) for the traders to game the system. How would one handle a 99% winning probability trade with a 0.5% return? If you are a trader using the bank’s capital, you would gamble big (and not hedging) and get the bonus year after year until the bank goes down with one single losing trade. You look like a genious up until that point. How did AIG get into the mess?….AIG was the pre-eminent insurance company and should know best how to spread the risks and gauge the counter party risks. They have the wrong model/calculation and they let the traders go wild.
    7. They were lucky and got into some of these products much later in the game, just prior to the blowup, so have less exposure.

  40. To be very precise, there are only 2 other companies in the mortgage insurance business in Canada:

    •Genworth Financial Canada (GFC)
    •AIG United Guaranty

    CMHC provides mortgage lenders with 100% capital relief from bank regulatory requirements on loans that it insures. In contrast, lenders receive only 90% capital relief on loans insured by AIG and GFC.

    The 10% difference is in recognition of the policy benefits associated with the broader mandate of the CHMC.


    For the benefit of US readers, the Fraser Institute is viewed by some as the Canadian version of the Heritage Foundation or Cato Institute.

  41. Canadian banks are also not organized as Bank Holding Companies like in the US thus the top level entity is the actual chartered bank which is subject to a CDIC resolution procedure(similar FDIC resolution and recievership) whereas in the US the top level Bank Holding companies go throw the normal bankruptcy process. Any bank failure in Canada would probably be handled by the CDIC akin to the US FDIC not through a TARP like process. If one of the big six failed the CDIC would probably have to create a bridge institution ala the FDIC and Continental Illinois. On another note many foreign counterparties don’t like signing ISDA derivative master agreements with Canadian banks because they are unsure in a Canadian bank resolution whether the CDIC would honor them unlike the FDIC. Simon is going too get a lot of flack from pitbull finance minister Jim Flaherty.

  42. “Though the largest Canadian banks are smaller than their U.S. counterparts on an absolute basis, it is important to point out that the Canadian economy is only about 10 percent that of the U.S. If we examine the size of the banks in the U.S. and Canada relative to each country’s GDP, we can see that the six largest Canadian banks are about three times larger than the six largest banks in the U.S. The six largest Canadian banks also represent about 90 percent of total bank assets versus only 51 percent for the U.S. banks.”

  43. The Bank of Canada, which has ABSOLUTELY NO direct regulatory or supervisory responsibilities unlike Bernanke’s Fed which insists that bank supervisory functions are absolutely essential to monetary policy. In Canada operation of the payments system is handled by the Canadian Payments Association which is itself seperate from the Bank of Canada. Bank and federal chartered insurance and trust co. supervision is handled by the Office of the Suprientendant of Financial Institutions. A few institutions such as credit unions, Desjardins and ATB Financial are under a combination of CDIC and provincial supervision although this number has dropped over the years.

  44. I can help Simon with the conundrum over Canada.

    Part of it is that supervisors actually do their job. OSFI’s “punk staffers” beat up on management mercilessly over any perceived slip up. They haven’t allowed nonesense to take place. OSFI says “jump”, and the only acceptable response is “how high?” – whereas in the US, sometimes the response is “go get lost”.

    I have personally been involved in reg. exams in both the US and Canada pre-crisis and post-crisis and frankly there’s no comparison. I’ve seen OSFI go ape-s**t pre-crisis over risk management practices that resulted in relatively minor losses.

    No Canadian politician will put one of the biggest banks out of business – but OSFI will fire the management team, that is something that their US counterparts have failed to do in all but the most egregious cases and even then not always. For example, why does Vikram Pandit still have a job? Ken Lewis was forced out but that was for trying to run a game on the Treasury, not just for being risky and incompetent.

  45. Most Canadian banks do not depend on wholesale funding as much European, American, and Australian banks for that matter. In this way they are similar to Japanese banks which have been able to use stable cheap local deposit basis to string out losses over decades. I actually found it amazing how close Toronto Dominion’s loan to deposit ratio was to Japan’s Bank 77 which blogger extroadinare John Hempton frequently uses as an example of the state of the Japanese banking system. One future problem in Canada might be the increasing use of life insurance and annuities as an alternative to the pitiful rates on Bank CD’s and Money Market funds. Canadian insurance companies are actually the greatest weakness of Canada’s financial system although I don’t like the state of insurance industry anywhere on the planet.

  46. Watch Fox News much?

    Actually, the most important reason Canadian banks have fared well so far was completely ignored by the author.

    The Canadian housing bubble has yet to burst. If the US bubble was still inflated, there would be no problems in the US either.

  47. Correct. Bank of Canada (BoC) Governor Dodge fired the first bullet at the end of October 2006, but the regulator – in this case the Department of Finance (FIN) – would not issue new government guaranteed mortgage rules for another 20 months. But the sharp and public admonishment certainly had the desired effect on CHMC’s management, who knew quite well of Dodge’s long reach, he had been FIN deputy-minister until his appointment to the BoC top job.

    CHMC management argued at the times that the changes it was proposing were needed to remain competitive with Genworth Financial. By the end of 2006, Genworth had introduced Alt-A and sub-prime mortgage products to Canada “for the self-employed who had difficulty documenting their income … (or) those who had experienced a credit set back but had started to rehabilitate their credit profile.”

    In July 2008, the government of Canada announced rule changes for government guaranteed mortgages to reduce the risk of a housing bubble:
    • Fixing the maximum amortization period to 35 years;
    • Requiring a minimum down payment of 5 %
    • Establishing a consistent minimum credit score requirement; and
    • Introducing new loan documentation standards.

    The difference with the U.S.
    • Alt-A and sub-prime products came late in the game and only gained a small share of very few markets (sheer luck due to inertia or prudence, and Dodge’s chilling of the CHMC, the 600 pounds gorilla in the Canadian mortgage insurance market);
    • Nobody lobbies Ottawa against FIN, and nobody in government would ever dare to challenge FIN and live to talk about it – the odds of success are just that terribly low;
    • K Street and regulatory capture – not much of a factor here at the best of times, and much less so in a minority government situation. Legislation can only be passed with the Conservative obtaining the support of at least one other party in the House – which means fewer legislation and/or better bills;
    • Appointment of senior government executives, including FIN and BoC: PM’s sole prerogative. Most have strong public policy background and careers. No confirmation hearings by the Senate.
    • The Senate – we have one too, but unelected Senators have little power beyond reviewing legislation introduced in the House.

    Come to think of it, and considering how seriously dysfunctional the elected US Senate appears (to us) at the moment, it may just be that PM Harper will definitely abandon its party “3E” Senate reform plan – elected, equal and effective.

  48. Canadian music is very good to listen to on your way to the Credit Union after closing out your account at one of the TBTF/large banks. I turn the sound up on my headphones for Neil Young’s “Rockin’ In The Free World”, and I swear if I focus very intently on the music I can hear a chorus singing the refrain “F*^K Dick Shelby”.

  49. A lot of very good, cogent arguments have been made. There are essentially two reasons: (a) the Canadians didn’t overheat the realestate market, oversecuritize risky loans and create unstable, untenable derivatives backed by corrupt ratings agencies, and (b) they didn’t hide their flawed balance sheet items with accounting tricks in sealed closets.

  50. I am definitely a non-expert on the Canadian banking system but I will share some thoughts as I am a Canadian.

    (1) The five big banks in Canada are an oligopoly. They have made made record-breaking profits year after year based on ATM and other transaction fees. They do not provide great service (unless you are rich) and these banks are extremely profitable.

    (3) The former Liberal government — under Paul Martin finance minister, David Dodge governor of the Bank of Canada, and Jean Chretien prime minister — deserve the credit for the strength of the Canadian economy when the 2008 financial meltdown started.

    – They had the foresight to refuse to allow Canadian banks to merge and grow bigger in the 1990s. These large Canadian banks might have ended up as subsidiaries of the TBTF giant banks. But it did not happen. Those calling for allowing our banks to grow bigger were warning if we did not our banks, and economy, would be less competitive and lose out on profit.

    – Paul Martin got the deficit under control, got the budget into surplus, and paid down some of our debt. Martin was unpopular among some in the leftwing for doing so. But in retrospect a complete relief he stood his ground.

    (4) In 2006 the Liberals got themselves unelected. We have had a minority Conservative government for the past four years. Our Tories are ideological counterparts of the Republican Party. They would have been in “lock step” with George Bush and Alan Greenspan if there had been the chance.

    – Our current prime minister Stephen Harper is a free-market economist and a former Western separatist (oil rich Alberta does not like to pay taxes.) Our current Bank of Canada governor Mark Carney is a former Goldman Sachs executive. Our finance minister Jim Flaherty has yet to distinguish himself.

    – In 2006 they began to deregulate our mortgage market. Something about 0% down and 40 year mortgages were being sold as the new way forward in innovation, competition, and economic prosperity.

    – After the 2008 financial meltdown, to stimulate the Canadian economy, home ownership has been encouraged. Banks are issuing mortgages that are guaranteed by the CMHC. In other words, there is no risk to the banks because these mortgages are insured by the government. Some find this situation alarming.

  51. I think Chris makes a very good analysis. In Canada government still can steer. Somewhat anyway. In the US government is steered by big business.

    One thinks of Eisenhower’s warning about the military-industrial complex . . what are the ramifications of the vast military spending in the US ? Does it affect the balance of power between the government regulators and the financial/corporate world?

  52. I think the Canadians are buying their second home in the sunny locals of the US where all the house flipping went on. In fact I suspect a lot of non-resident buyers were in the housing market. Therefore there is no feeding frenzy in Canadian real estate except for the chic cities. The country is more unionized than the US and the electorate is more accustomed to social welfare policies. So all the crooks in Canada move to the US to perform their real estate swindles.

  53. If those folks who think keeping TBTF is the way forward because Canada has big banks they should ask the former Canadian finance minister Paul Martin what he would do.


  54. No Canada is not the perfect solution to our problems, but at least they know how to govern their banking sector, This is a lame attack at best, they govern well, and we could do well listening to them and how they govern.

  55. Actually, I think Martin could cure what ails the US financial system. But most likely Martin would propose a version of what Volker and friends have already given.

  56. I guess what is interesting about Martin is while he did prevent mergers among the Big 5 it is less well known that he actually in many ways deregulated to Canadian banking system beyond even Graham Leach Bliley and CFMA. I know this sound really odd but Martin allowed non banking industrial corporations to own banks such as Canadian Tire(a big no no in the US) and allowed banks to get into businesses such as insurance and energy/commodities trading in a far more explicit way than is allowed in the US. Canadian banks can own up 15% of non banking industrial companies. Canadian banks are also taking greater share of the insurance business than perhaps any group of banks in any other country in the western world.

  57. To Martin’s defense he was simply aligning Canadian policy with that of the EU which has long allowed industrial banking and created an independent consumer regulator although I don’t think most Canadians have even heard of it. Martin also didn’t due. I would say Martin is ULTRA deficit hawk of which few exist other that Volcker in the US. Also Glass Steagall restrictions were never as pronounced in Canada and existed only to the degree that mutually owned and operated stock exhanges such as Toronto refused the commercial banks as members. This changed in 1987 with the Hockin Qwinter accord(kind of Canada equivilant of Gramm Leach Bliley)

  58. lol … Canadian Tire bank … Then there is that big box grocery chain that owns President’s Choice bank … or whatever its called.

    So there are five big banks and some of the big chain retailers have started banks. It does create competition.

    In the end I really don’t know that much about Martin … other than that I think Canadians owe the Liberals a major debt of gratitude for not leading Canada into the deregulated mess that the American financial system appears to be in.

  59. I have always though of Americans as children of Andrew Jackson and Canadians as children of Queen Victoria. In many Simon like him or not is espousing the Jacksonian distrust of large centralized institutions that has existed in the US for 200 years whereas in many ways the essence of Canadianism is defined in national coast to coast institions such as the big five chartered banks, the CN and CPR railroads(moreso when people traveled more by rail), the CBC, the now Fairmont grand railway hotels(such as the Chateau Frontenac in Quebec City), Air Canada, and Bell Canada. Think about the difference between PBS which is basically a loose amalgamism of local non-profit organization that own tv stations and the centralized CBC. Even odder examples are the fact that all of the major airports in Canada are owned by the federal government whereas in many places in the US major airports are run by cities and counties


    This article is a good example of the Canada corptocracy works. The government is imposing a “technical” change to the sales/GST imposing sales tax now on independent mortgage broker commissions thereby benefiting non-commission bank branch loan officers. Remember too sales tax is much higher in Canada in Ontario it will be close to 13%. The few independent mortgage brokers in Canada are claiming this will put them out of business and bank loan officers will be the only source of mortgages. Also money market funds will have to charge sales tax on management fees thereby benefiting even further Bank CD’s

  61. I agree with other posters that the quality of the assets in the Canadian banking system needs to be analyzed before any conclusions are drawn. What was the average down payment on a mortgage in Canada? If homebuyers had to put 20% down, then banks could leverage to the hilt and they should still have a good chance of a full recovery in the event of foreclosure.

    If U.S. banks always required home buyers to have 20% skin in the game (20% down), I guarantee we never would have had a housing bubble. The bubble occurred due to all the zero-down and neg-am loans.

  62. This article does not ask where the Canadian regulations came from. My understanding is that they are a legacy of the Great Depression and the lessons learned during that time.

    This article basically says that the government is insuring all deposits in Canadian banks and that is a bad thing.

    What the author does not want to admit is that our entire economy is built on the idea of confidence. Why is that piece of paper in your wallet worth 10 dollars? Its because we believe it to be worth that.

  63. The reason why their banks have not collapsed is the same as why Australian banks have not collapsed – the bubble in their housing market has not started to deflate. And why? because of the amount of commodities exported to china is supporting their economies and supporting jobs even as exports to US plunge. The rest is just bs. When China is done inflating its imports thru stocking of commodities, watch the AUD and Loonie go, and then their respective housing bubbles.

  64. Regarding the lack of depth of this post I am reminded of the verse in the bible in Matthew 23:24 where Jesus accuses the scribes and Pharisees that they “strain at a gnat, and swallow a camel.”

    I think the piece was intended to raise the question and MAKE YOU THINK rather than be a dissertation on the Canadian banking system. But then it’s just a “Typical internet debate”

    1) Crazy poster makes crazy claim.

    2) You write a miniature pamphlet explaining why it is wrong, drawing on philosophical, historical, and other considerations.

    3) Crazy poster ignores 99% of what you write – and we’re not sure if silence means agreement, disregard, or reading comprehension problems – and focuses on one thing you said, usually taken out of context or peripheral to the main point.

    4) You, like a shmuck, play the game and make it about that one thing. Now you’re debating something else.

    If you believe the post is lacking sufficient detail to post an intelligent response there’s a solution:

  65. They said that the bubble has not yet popped. In Canada, it *IS* an oligopoly. It is more expensive to bank in Canada.

    Perhaps you work for Canadian banks. Or you are one of those jingoistic Canadian I keep walking into.

  66. Mike’s right.

    Although I don’t get the Fox News bit. Essentially questions of ethics don’t apply. It’s a question of risk. The GoC covers it. Now, on the other hand, we were leveraged, for sure. But in what? Not collateralized debt obligation or credit default swaps (to the same extent – and that extent was covered by the federal gov’t covering $65B Cdn in toxic assets)… That’s a key point ignored by the author. Also, when Bear Stearns started selling their A and B rated debt portions and only keeping the Cs and lower to maximize returns, well, you know how that worked out.

    Finally, our bubble hasn’t burst yet, but will. Granted the source of that bubble is the same: cheap credit, its management is very different (there are no CDO’s in Canada – that’s where the regulation point does stick). Realtors and banks, instead, have targetted first time home buyers with, initially zero-down/40 year; then 5% down/ 35 yr mortgages. Now they’ve changed the rules again to try and staunch the flow and avert the inevitable.

    I dunno if you cats know anything about Canada, but when 1700sq ft houses are selling for $700K in Regina, Saskatchewan, we gotta BIG problem.

  67. Like Simon’s post explains, Canadian banks are allowed to fleece their customers with a depressing number of fees.. fees to keep your account open under a certain balance, fees to write cheques, fees to avoid fees… the fees that drive Canadians the most insane are ATM withdrawal fees from a bank other than your own. Even if you pay the monthly fee for “free” ATM transactions, that only applies to withdrawals from your own Bank. If I’m with bank A and I withdraw money from bank B then not only does bank B charge me $1.50 to $2.00 for the withdrawal, my own bank charges me $1.50 for the inconvenience of having to deal with a competitor. So it costs me $3 to $3.50 if I want to withdraw $20… This wouldn’t be so bad if banks had good coverage with ATMs but I swear to God they collude to make sure that no single neigbourhood outside of downtown has a full range of machines within a reasonable distance of each other. Back when I moved every 18 months or so I would have to consider ATM access in my housing decisions or switch banks to avoid fees..but then of course you start from scratch with the new bank… all the privileges such as pre-clearing cheques and so forth go up in smoke if you switch which is a pretty strong dis-incentive to leave the bank you’ve been dealing with for 10 years…

    But if these fees, as much as we complain about them, permit banks to make enough profit to keep their noses out of more risky and addictive practices, are they such a bad thing? This post does make me worry that our banking system is only as virtuous as the people who run it… Canadians are a fairly smug lot… at the end of the day we tend to be as gready and self-righteous as the rest of ya..we’re just more polite about it. Just ask Conrad Black.

  68. Well Mar./April 09 was rock an roll time to buy the big 5….they all have large cash holdings to move, or have it taxed away…Bend over MIT

  69. The Canadian banks have a reputation for being conservative and less vulnerable to the disease that affected their cousins to the south. This is from back in 1989:

    Do you think the situation has improved since then? Or just covered up better. They’ve probably just taken “off-balance sheet” to stratospheric levels. They avoided much of the mortgage garbage? Perhaps because their greed was satisfied in other, quieter ways.

    If you want to keep things looking squeaky-clean, use a Canadian bank.

  70. If the Canadian banks were loaded up with toxic opaque super-leveraged derivatives that had been used to facilitate a housing bubble, they would failed, too.

    Simon may be right about not being able to adopt their exact model, but regardless, their system / regulation kept them out of that, so they didn’t blow up.

  71. My edmonton house is down from $400,000 to about $300,000.
    I think the author is stupid, like the bankers and the legislators. You need robust regulations and enforce them. Simple and smart, like Canadians.

  72. mondo pinion wrote:

    “One thinks of Eisenhower’s warning about the military-industrial complex . . what are the ramifications of the vast military spending in the US ?

    Does it affect the balance of power between the government regulators and the financial/corporate world?”

    Is the pope Catholic? :-)

  73. I would say one of the businesses Canada would rather not let the world no about its success in is the drug trade. Increasingly Vancouver is being becoming the Cali Colombia of synthetic drugs due to a large indo canadian population with advanced knowledge of chemistry. Also many of the precussor ingedients to lab drugs have higher than average usage throughout Canada in areas such as agriculture. Some forms of ectasy are even quasi legal in Canada. A very high number of luxury automobiles are leased not purchased in the Vancouver area many believe by people trying to avoid drug confisication seizures. Also while the non documented mortgage market is quite small in Canada a large number of no doc loans that do exist are on luxury property in Vancouver purchased by people who can’t show verification of income.


  75. Isn’t it possible that Canadian banks make better loans, even if the banks themselves are more leveraged? You could be leveraged 10000:1 as long as your borrowers are making payments it doesn’t matter.

  76. tippygolden, thanks for the cogent Canadian perspective.

    Our current prime minister, Stephen Harper, is also an economist. I think he graduated at the bottom of the class. A few weeks before the equities crashed in 08, he was asked if he had any concerns about the US financial markets/subprime, during an election campaign stop. He replied, if there was a problem he would have known about it, and shrugged his shoulders. Fortunately I didn’t share his opinion, a month earlier I liquidated the majority of my equity positions, focussing on asset preservation and finding safe harbor.

  77. The cultural difference argument falls very flat for me (as a Canadian with an American wife, some hybrid kids and lots of friends and colleagues on both sides of the border). There are risk-loving Americans and risk-loving Canadians, same goes for conservatism. It’s all about the incentive to act in a given situation.

    The most effective (not only, but most effective) change would be the hardest to enact. When you can’t deduct the mortgage interest you pay it down as fast as you can because interest saving is a solid risk-free return. That contributes to higher home equity levels and the downstream stability that flows from it.

    Now go and try to pin the root of the financial crisis on US consumers and get that change through Congress… heh

  78. Tippy has brief and informative comments. Comments by others mostly avoid/unaware of the sociopolitical aspects of Canadian banking. Smile America! The two societies,cultures and organization in banking and finance have a too large divide to make direct comparisons particularly advantageous. USA will continue down their road and Canada will do the same.
    History to date appears on Canada’s turf as the system works.

  79. Sligh correction to the article. The banks don’t pay the fees to the CMHC. The homeowner does. This creates a significant signal to the homeowner not to overleverage since they know exactly the cost of being a high ratio mortgage (the fees go up with leverage ratio).

  80. When the OP said “let’s see how long that lasts”, I guess he missed the rule change announcement to take effect April 19.

    “Borrowers will need to have the resources to qualify for a five-year fixed-rate mortgage even if they decide on a lower-cost variable rate mortgage.

    The maximum amount that can be withdrawn when borrowers refinance their mortgages (and draw out additional equity) will be 90 percent of the value of the home, down from 95 percent.

    A minimum down payment of 20 percent will be required for insured mortgages tied to properties purchased as speculative housing investments not occupied by the owner.

    These new rules come into force on April 19. The government says it has made these adjustments to its mortgage rules in an attempt to prevent a U.S.-style “housing bubble” in Canada. “

  81. dh wrote:

    “When you can’t deduct the mortgage interest you pay it down as fast as you can because interest saving is a solid risk-free return.”

    Up here in Canada, my immigrant parents helped payoff their first home by renting all three bedrooms upstairs, while the three of us lived downstairs in the dinning/living room/kitchen. Everyone shared the same bathroom.

  82. Mark Dowling wrote:

    “The government says it has made these adjustments to its mortgage rules in an attempt to prevent a U.S.-style “housing bubble” in Canada. “

    03-21-10 – ST. LOUIS POST-DISPATCH – excerpts

    “Canada is a banking oligopoly, with six big banks holding 90 percent of the business.

    In some ways, oligopoly is bad for consumers.

    “It means you pay more for service, more in fees, which is irritating,” Smith says. “It’s less consumer-friendly.”

    But the limited competition means that no bank is tempted to chop lending standards to bring in business.

    “We never saw banks do the wild kind of lending,” says Craig Fehr, an analyst at Edward Jones who follows Canadian and American banks.

    Mortgage securitization never really caught on in Canada — which is one reason it avoided a housing price bubble and the subprime mortgage disaster. Canada has no Fannie Mae or Freddie Mac, which buy up mortgages from lenders, package them into securities and sell them to investors. During the subprime mortgage boom, many American investment banks also got into the securitization business. The ability to pass off shaky loans to the next sucker led to shaky mortgages being made to people with limited ability to pay.

    By contrast, Canadian lenders generally hold on to the mortgage loans they make. As a result, they make good ones. “They have a vested interest in getting paid back,” Fehr says.

    In 2006, when the American housing bubble was building, more than 20 percent of American mortgages were subprime. The figure in Canada was about 5 percent. Canadian banks want a government guarantee for mortgages with less than a 20 percent down payment, and the government set high standards for its guarantees.


    In contrast, the Federal Reserve, which has the power to regulate mortgage lending, sat on its hands while American banks went bonkers.

    “We went amok here. We were utterly irresponsible,” Smith says.

    Capital requirements for banks are higher up north. Canada also has a more centralized, encompassing system of government regulation for banks, investment banks and insurers. American regulation is a mishmash of five federal agencies and more than 50 state ones, operating with different levels of zealousness. That’s how AIG could run wild, running up billions in risky bets with no particular regulator paying much attention. That’s less likely in Canada.

    When the American housing bubble burst, Canadian prices dipped slightly, then started to rise again. Now, the Canadian government thinks they may be rising too fast and is moving to cool the market. America can’t duplicate the Canadian system: We’re not going to merge thousands of banks into six. But there are some lessons to be learned.

    One is that lenders should be forced to retain some liability for the loans they make, rather than simply passing them on. That’s contained in some banking reform proposals now in Congress. “You want the lenders to have more skin in the game,” Fehr says.”

  83. I live in Canada and I pay NO fees. I use the ATM at the supermarket, and deposit cheques there — all free. I can write cheques for free also. I do my other banking and keep my savings accounts at a local credit union, and as long as I have $1000 in the bank they charge me no fees to write or deposit cheques. I do not use debit cards — just carry a bit of cash and some credit cards which I pay clear each month at the free supermarket ATM — so don’t know if those have fees or not.

  84. I watched Harper during that period. I am sure he was saying what he did to keep public confidence steady and avoid a panic. Which is good leadership up to a point — beyond that it just sounds stoopid.

  85. “Jamie Dimon has 80 trillion dollars of derivatives (much more than world GDP)”

    I assume this isn’t the first time you’ve heard this but: you’re an idiot.

    Specifically when you compare sums of notional derivative contracts (which offset each other) to worldwide GDP.

    Bank A and B could trade swaps all day for a decade. And have no net exposure to each other. But they could have a large notional amount.

  86. Your post goes to the underlying problem. A tendency for people not to take responsibility for their own actions. For example, you are complaining about fees when using a bank other than your own. If you don’t like this, don’t use a bank other than your own. Simple as that.

  87. You of course know that although the banks don’t carry the risk of the mortgage there are specific regulations as to how and what they can lend. Oh and regulators in Canada actually do something… they aren’t owned like the FDIC is.

  88. It’s interesting to learn Peter Boone is Canadian. (I thought he was British). It’s also nice to have some discussion on the Canadian banking system and whether it justifies TBTF in the United States.

    There are some things I am worried about that I have not heard really discussed in Canada. This issue is related to the health of the financial system.

    I was shocked to learn sometime in the past decade the Canadian government decided to invest part of the Canada Pension Plan (old age security) in the stock market. My concern was this huge cash reserve might be abused. That being said, the AAA-rated bond market has been discredited. But still … given the volatility in the stock markets should governments be investing pension funds in the stock market?

    I am wondering … These huge pension funds (public and private) could be fueling bubbles while the financial sector gets enriched on transaction fees. Perhaps these funds are somewhat like sitting ducks waiting to be raided.

    I guess all one can hope for is that governments are meeting their duty to ensure the soundness of the financial system in which these huge cash reserves are invested.

  89. It seems to me using the large banks in Canada to justify TBTF in the United States is a “canard”. The large Canadian banks are still a drop in the bucket compared to the size of TBTF. If a large Canadian bank failed I don’t think they would take down the world financial system.

  90. tippygolden wrote:

    “I was shocked to learn sometime in the past decade the Canadian government decided to invest part of the Canada Pension Plan (old age security) in the stock market. My concern was this huge cash reserve might be abused.”

    CPP Fund (Canada Pension Plan)

    56.1%- equities
    30% – fixed-income
    13.9% – inflation-sensitive assests

    A great deal depends on keeping equity markets afloat, especially for Canadian pension plans.

  91. Question: is it true that, in the U.S., homeowners can walk away from an “underwater” house, and the banks can only repossess the house – nothing further? In Canada, the Banks can go after all your assets if you try that — effectively, you have to declare bankrupcy if the value of the house is less than the mortgage outstanding, and you want to escape. It seems to me that the american model effectively gave U.S. homeowners a risk-free way to gamble on rising housing prices, with the banks taking all the risk. How much did this contribute to the crisis? Comments?

  92. While the comment you reply to is not accurate, it is you, sir, you are an idiot.

    You assume all these swaps are nice and tidy and match each other just so. Well, we have only the word of these enormous institutions, which we know we cannot trust, for that one.

    Total swaps are now in the $quadrillion range.The Bank of International Settlements itself has warned about the trajectory – essentially infinite. Now why would the banking system need to back up swap arrangements into the 25th century?

    Nobody knows the whole story as to who is on the other side of what. It is argued that “credit at risk” is in the range of a half trillion to one and a half trillion dollars. However, as the bulk of these are interest rate swaps, a major currency crisis that affected a mere 1% of these would blow the entire thing into another dimension.

    You seem to have great faith in “The Wizards”. Well, they’re very good at extorting money from the system – but they are also as prone to a miscalculation as anyone else.

    You cannot “hedge” the entire financial system, which is what they believe they’re doing – Archimedes had a better shot at levering the earth using the moon.

    Snap out of it.

  93. Regulators in Canada do something? That’s hilarious. The banks & key government players are completely fused, and have been for generations.

    The sole reason Canada’s didn’t have its crisis yet is that they were making stupendous sums of money in areas other than housing, which half the comments rightly point out is where the bulk of the IMMEDIATE risk lay at that time, and was taken by CHMC.

    I would also note that relative to the US, public information is virtually non-existent as to who made what moves when – it is widely reported that 1 major bank was insolvent and bailed via CHMC.

    The Canadian banking system only survived at all because the US threw $23 trillion into its system to “stabilize” it in late 2008/early 2009. Had that portion of the crisis continued much longer the banks’ huge bets on non-housing sectors would’ve begun to fall apart.

    When the second round of this crisis hits, Canada is going to be impaled – instead of realizing we had temporatily dodged a disaster, it did absolutely nothing to re-orient the economy. It in fact doubled down on a dead-end. We (Canadians) are living in a dream world –

  94. So how long can Canadian home prices be twice that in the US while incomes are still lower?

    People seem to think it’s OK to have a decimated economy so long as you have solid banks (even if they were solid. A forced (by bond markets)modest but quick interest rate spike will bankrupt 10% of hoeowners. A treue surge in rates and it’s 15%. The sudden impact on jobs etc., and it gets worse.

    If Canada had any brains at all, it would immediately put the brakes on in the whole FIRE sector. It would also hop off the over-reliance on commodities, in particular the oil sands – a $100+ billion bet on the dirtiest, most expensive oil there is – you think the US is in Iraq for not reason at all?

  95. A 5% down payment is no down payment at all. Ten is littel better. The 100-year average for housing, which had been remarkably stable overall, was 20%.

    Canadians as individuals/households have put themselves into exactly the same position as in the US by 2007. It does not have to be housing that brings it all down, though it would of course be immediately implicated.

  96. The bulk of the crisis took place in 2007, long before the high-profile stuff hit the fan. Where were regulators in 2006? Why did ond Canadian bank techically fail, only to be be quietly bailed?

  97. If people have such a problem with banking fees here in Canada well you can go do your main checking with PC bank which I belong to. I can do all my debit purchases without paying one fee whatsoever. Also I can pay all my bills online again no fees. I also belong to one of the big 5 banks for investing BNS. If people here are so mad at the fees, then shop around, and hey why not buy the banks stock and collect the juicy dividends?! Also we have a non-profit debit/credit system called Interac which has worked pretty good here in this country. Now we have Mastercard/Visa wanting to come in and establish their own systems “to create competition”. All this will do is drive prices up for consumers as the merchant will have to pay more transaction fees to Visa/MC, and who is going to pick up the tab here? Canadian consumers. American originated crap just stay away, stay away. Look at the sub prime alt=A etc. mess, thank god only a little bit of that came up here.

  98. OK I get the picture:

    (1) 56% of the Canadian Pension Plan (old age security) is invested in equities. The AAA-bond rated market is discredited

    (2) all investment funds (including the Canada Pension Fund) are holding toxic assets from the 2008 financial meltdown

    (3) global GDP is $20 trillion

    (4) the notational value of the OTC derivative market is $600 trillion

    (5) TBTF does not want to be regulated … they want back to business as usual

  99. I mean … its ridiculous to have a securitized asset insured and sold, reinsured and resold, multiple times. Jerry J has suggested this can happen to a single mortgage 10Xs (and more?). The underlying security could be nearly worthless. The money is in the transaction fees.

  100. Exactly. The true fleecing is the “commission” they earn on creating these default swaps.

  101. Tom I don’t know where you get your facts but you obviously don’t work in the industry.

  102. In light of recent events one might speculate that growth targets for pensions funds are using unrealistic metrics and recipients may have to tighten their belts in the future.

  103. This is the weakest article I have ever read – no hyperbole either… just weak. The suggestion that Canada Mortgage and Housing will soon fall to the lure of toxic investment devices is craziness… how can authors attempt such a weak premise for justification. There are many reasons the Cdn banks stood out in the world but if you look to countries where the banks faired well – Australia and Spain included – you will see stronger government regulation. Simple as that. Mr. Boone and Johnson may have some axe to grind but the criticism here should be targeted at their so-called piece of journalism – if I cooked my books counting toxic assets as Tier 1 capital I too could make my leverage levels look great – simple as that.

  104. Hat tip to Rickk for the link.

    According to this link: To stave off the 2008 economic meltdown the CHMC (Canadian government mortgage insurer) purchased $25 billion, later raised to $75 billion, then $125 billion in — mortgage assets — held by the big Canadian banks.

    Following the melt down, low interest rates encouraged home ownership and re-inflated the Canadian economy. Following the 2008 financial meltdown, this practice continues. At present, half of mortgages issued by the banks are insured by the Canadian government.

    When Canadian interest rates rise and the housing bubble deflates the losses in the mortgage market will be socialized.

  105. I’m an American living in Canada and the difference is pretty noticable… the Canadian system is WAY less competitive. I don’t think most Americans would actually like a Canadian system, even if it is slightly safer.

    As people have mentioned, banks make a lot of “safe” money charging fees that seem totally unreasonable to an American. I was charged for using my debit card too many times in a week, for having a savings account, for having a checking account, for not keeping a minimum of $1000 in said checking account, etc. The fees and service charges are EXACTLY the same at all 5 major banks across the country – there is no even the slightest attempt to compete with each other for customers.

    By contrast in the small US midwestern city I lived in, there were many small regional banks, 6 or 7 credit unions for teachers/city employees/university workers/farmers, and all of the major US commercial banks as well (citi, chase, etc).

    Eventually we moved to a credit union to avoid fees. However credit unions are only allowed to operate in one province at a time, meaning that when you move you need to start the process all over again.

    The fact that the banks don’t compete with each other is bad for consumers. The flip side is that banks make easy mindless profits and (arguably) aren’t tempted to get tricky with enticing customers who aren’t creditworthy.

    But to everyone singing the praises of the canadian industry, recognize that it’s just a straight-up oligopoly that is nice for investors but very unfavorable for the (non-rich) consumer of financial services.

  106. It is quite simple, Canadians are, by nature, more risk adverse than Americans. It has nothing to do with regulation but rather makeup of the nation.

  107. By risk adverse maybe you mean … Canada did not swallow the past decade of free-market ideology hook, line and sinker. IMHO, just the hook and part of the line.

  108. Canada was settled, in large part, by Empire Loyalists and the French. One group didn’t want to become Americans and the other came from a culture that embraced governmental help. It is no surprise to me that we avoided what happened in the States. In subtle but important ways, Canadian are different than Americans.

  109. Adam, you demonstrate my point about fees admirably.

    And in response to Ken Dreger, I’m all for taking responsibilty.. but I’m sorry, when it’s 2 a.m. and I desire to take out another $20 to buy a last round and I don’t want to use my credit card and the bar I am in doesn’t accept Debit cards to avoid the fees and cash in on their “in house” debit machine, I bite the bullet and use the said in house ATM. My only other alternative is to walk six blocks and back by which time the bar will be closed. And not everyone can easily keep their bank balance over $3000 !!! which is the threshold at TD if you want a decent checking account with unlimited transaction fees (within the TD ATM system that is)..

    My wife lived in the US for 15 years before returning to Canada and she was stunned at the fees and the very few PRACTICAL alternatives that were available.

    THAT SAID…if these fees keep the banks from becoming addicted to high risk financial practices then in the end the actual cost to taxpayers in the long run might actually be much less than a taxpayer funded bailout of the banks… If I were told that I had to choose between Wild West Banking/no fees and Boring banks/with fees… I think I would stick with the latter. What can I say? I’m Canadian.

  110. I read somewhere the University of Chicago trained a generation of economists who went back to their countries in South America to implement free market theory. Something like this perhaps happened in Canada. I am definitely not an expert here … but I think the University of Calgary (and now other academic institutions) are the source of what feels like American Republican ideas about the economy, military, gun control, law enforcement, religion. I don’t recall such American-style ideas being influential when I was growing up.

  111. >”We don’t need to look far to see how “Canadian-type systems” eventually fail…In Ireland the three largest banks …”

    You lost me there. Is this the same Ireland banking system that allowed horrendously risky property development loans, reckless 110% 40 yr interest-only buy-to-let mortgages, and staggering criminality among banking directors with regulatory/government agency collusion ?

    Does that sound at all similar to the Canadian banking system ? I didn’t think so.

  112. Got to agree. The arguments are too superficial to be sound. I’ll take 50:1 leverage on a bar of gold before I take a 2:1 leverage on a subdivision 50 miles from nowhere with no buyers in sight.

  113. Why did you say Canadians have more work to do on ethics, and talk about stealing, and then give two links to stories in the US?

  114. “If Canadian banks were more leveraged and less capitalized, did something else make their assets safer? The answer is yes – guarantees provided by the government of Canada.”

    A half truth! The CMHC does provide the insurance homes with higher dept-to-equity ratios, but the mortgages in Canada are full recourse. You can’t just walk away.

    Furthermore, your leverage argument is another half truth. Have a look, at Total Debt to Assets (As provided by Google Finance)

    CIBC (CM) – 12.68
    Bank of Montreal (BMO) – 13.01
    Bank of Nova Scotia (BNS) – 8.66
    Royal Bank of Canda (RY) – 6.86
    Toronto Dominion (TD) -14.08

    And now south of the 49th –

    Bank of America (BAC) – 36.30
    JP Morgan Chase (JPM) – 37.68
    Citigroup (C) – 30.30
    Goldman Sachs (GS) – 31.64
    Morgan Stanley (MS) – 26.39

    Leverage is not always a bad thing. Being leveraged 30:1 on T-bills or AAA Bonds is a load different than being leveraged 10:1 on penny stocks. High leverage in markets with low volatility is the only way to remain competitive to those that are taking on risk by trading in highly volatile environments.

    Knowing leverage statistics is not useful unless you know what financial instruments were purchased with that leverage. I find Debt-to-Assets much more clear in gauging the health of a financial company.

  115. It’s never the system that fails, it’s the people. You can have the greatest fail-safe defense system but it just takes one “bad actor” who bypasses it to wipe out an organization. Remember Barings Bank letting Nick Leeson rack up billons in losses.

    In the US, the private mortgage lenders knew the loans were bad but as long as Wall Street was buying they happily fed the demand. When will we ever hear of thpse who knowingly approved the NINJA (No income, No Job No assets) mortgages and “Liar” loans going to jail.

    In Canada, the Big Canadian banks are the main issuer of mortgages and have more at stake so there wasn’t that temptation to engage in such practices. If they did the other banks would hear about it and squeal.

  116. American banks charge fees for other ATMs too. As much as I hated CIBC while I was living in Canada, I found Wells Fargo and BofA even worse while living in the US.

  117. Rob, You are so full of beans-and yourself. Typical Canadian smugness. Well, you are looking down into the abyss and all you see is that red and white maple leaf with your Tim’s coffee. You and a lot like you are getting caught with your pants down as you bend over looking at your flag. Yes, I’m a Canadian, and left 15 years ago-the BS that the average clown there makes me sick.

  118. The lack of a popped housing bubble is a fair point of difference between the Canada/US comparisons.
    Depending on who you ask, housing prices are either supportable or up to 30% overvalued to market fundamentals. Depends on whether you speak to your local ReMax rep or believe David Rosenberg.

    Let’s assume for a moment that values were to suddenly drop by 20%, or even 30%. The resulting impact to housing values would not be as impacted as in the US, because the number (percentage wise) of homeowners that would be in a negative equity position wouldn’t be the same as the US.
    While recent stats from CMHC indicate an increase in first home buyers putting the 10% minimum down, that’s not a 5yr trend line and still real equity.
    Additionally, the qualification of the borrowers which is regulated by CMHC and carried out by the banks, lifeCo’s, credit Unions, etc. is much more consistent. The bank may have given them the max loan based on the 35% gross service ratio, but they actually reviewed pay stubs, bank records, completed a credit check and qualified the client.

    Are we in for a reckoning, YES. The same as anyone in the world that has debt and sees their borrowing cost double.
    CMHC and the banks have done a good job of ensuring a credible qualifying process for borrowers. While they got a little lax in 2008-2009, there is political pressure to enforce these policies.
    That, and a US turnaround should be enough to ensure armaggedon isn’t in the future.

  119. Are these authors stupid, or simply paid hacks of the American banking industry?

    The authors cite leverage is the problem. Leverage is but one aspect of a bank’s risk. What the American banks learned is WHAT YOU INVEST IN is more important than HOW MUCH YOU INVEST in it.

    For years and years, the CEO’s of Canadian banks lobbied the Canadian government to relax lending regulations on mortgages and participation in other investments. They cited American bank practices and the profits they were making as the model Canadian regulations should emulate.

    What have we all learned. Bankers are just like greedy pigs – sometimes they have to be held back from the trough fro their own good

  120. This is off topic, but … where are these Canadians coming from when they declare a national gun registry is big government interfering with their rights. I don’t recall private ownership of fire arms being a Canadian tradition. So why has this become part of the national political agenda?

  121. I’m a Canadian and I have 3 online “high interest” accounts that charge no fees. I have 2 accounts at a Credit Union that charge no fees. I have 1 account at one of the big 5 banks, that charges a fee of $7 a month but that fee is waived if I keep $1000 in the account. I have 2 credit cards, neither charge a fee.

    At the height of the financial hysteria Canadian Banks were trading at 1999/2000 price levels and the Canadian PM was interview and said it was a buying opportunity, I bought and made 10 years of profit in 1 year.

    The Canadian banks all pay a reasonable dividend to shareholders and the $7 I might pay is far less than the dividends the banks pay me.

    This article is a smoke screen. What it is covering up is the utter FAILURE of REGULATORS in the US. In fact the deregulation and packaging of highly risky assets by US banks, with the failure by the rating agencies, is appalling. The failure in the US is a political failure that let bankers fleece individuals and the world paid the price. The last thing the world needs is US style, unregulated, banking of any kind.

  122. We have been here before and in fact the debt obligations re. Cdn banks were far worse in the eighties when Latin America threatened to blow up our banking system. But one thing we’re better at than the Americans – We earned our way out of that crisis and that is precisely what we are doing now.

    I bet heavily on the banks in Feb/March 2009 and doubled my money. You say an imploding crisis? I say bring it on as I will buy more.

    And what say ye to the World Economic Forum rating the Canadian Banking system as number one for the second year running? Fudged figures. Then you know more than them.

  123. No major Canadian bank has failed since before the great depression. There was no Goldman-Sachs. The system is inherently stabler and the regulations were enforced. This article is quite slanted, comparing the large Canadian banks which had similar exposures to one American bank with a very low exposure.

  124. “Let’s see how long Canada resists that temptation.”

    I’ll tell you how they are gonna resist temptation, as of mid-April, here the new rules to resist temptation and effectively restrict new people from buying houses…

    1. You now need 20% downpayment…point final!
    2. You HAVE to qualify for the 5 year fixed rate, even if you want a lower variable rate..I REPEAT, YOU HAVE TO QUALIFY FOR THE 5 YEAR FIXED RATE.
    3. You can only refinance at 90% of home value, instead of 95% (that is actually a good thing, because it leaves equitiy in the house in times of crises).

    This is what the government is doing to stop temptation, but also effectively, restrciting people from buying houses…which is gonna push the prices of rent way up.

    Imagine buying a modest house at 150K, you now need 30K as downpayment..try to save that when you are starting/mid career and still paying back all your loans..

    Thank you Canada, the worst mafia country in the history of the world. The Canadian banking system is not based on socialism or sharing of risk, it is controlled by 5 hands that guarantee maximum profit for the government.

  125. The people that work at the investment banks in the US are so corrupted by the enormous amount of money they make that they willfully close their eyes to the risks they are taking.
    The American banking and taxation system around mortgages and home ownership worked just fine until the Wall Street boys got involved.
    In Canada we didn’t get into Credit default swaps (except for the CMHC insurance taken out by the homeowner) or CDO’s or synthetic CDO’s at all. I am not even sure it is legal to buy insurance on a loan that you are not party to.
    Also, our banks are not strongly driven by share prices. Security of deposits and reliability of dividends are what they strive for above all.

  126. Canada’s economy grew 6.2% this last quarter and they did avoid the bank meltdown. There are several very large banks so it isn’t the size, it’s the regulations that prevented the banking problem such as in the US. The Bank of Canada is an entity that regulates these large banks and that regulatory board prevented the banks from making the risky transactions. Norway did the same, and although both economies were impacted by the meltdown in other countries, they felt it less because their regulatory boards were serious. Applause for the Canadian banks.

    Take care, Jay

  127. Canada has plenty of subprime waiting to crash at the nearest 10% pullback into negative equity territory. CMHC is a like the Titanic before the berg. Those who think Canadians are so much smarter and financially safer haven’t a clue.

    I know many who should never have gotten a mortgage and barely make end meets and are swearing their friends off buying as they had no clue what it takes. This is all going to end ugly.

  128. Very interesting article, Simon. One quip:

    “lending standards slipped”…

    That’s a very passive, neutral way of saying it. I’d argue it’s a misleading phrasing.It almost sounds as if the lending standards in the US “slipped” as the result of some inevitable force of nature (or the market). It just happened.

    But isn’t it the case that they were PUSHED down by explicit government policy? Isn’t it the case the easy monetary policy lead to an expansion that dried the well of qualified borrowers and, in the face of rising costs and inflation, incentivized firms to move into increasingly marginal borrowers or see their yield-hungry clients go elsewhere.

    None of this is to excuse firms that knowingly sold garbage to make a quick buck. Failure is the answer. If we are simply taking failure off the table, we’re taking any hope of market discipline along with it. When you have government policy that provides a backstop for failure and government sponsored enterprises more than happy to buy up your trash, the results are anything but a emergent. They are designed. So lets not act as if this whole thing was some force of nature or the market. It most certainly wasn’t.

  129. Great link re: michael webster (

    I think this is a great article. But I do not think it’s just about leverage, obviously the banks were doing more than that. They aren’t allowed to do all kinds of nasty stuff up here in Canada (which DOESN’T mean that Canadian regulators are better, just that there are different and more stringent regulations). However, it is quite clear that the Canadian real estate bubble has not burst yet, and when it does, things will get really bad. Prices have risen since the US bubble burst, and I definitely agree with the commenter (way above) who said that when houses in Regina are going for 700k we have a problem.

    The new regulations about mortgages may cool the market a bit. I am hopeful that this will happen. However, rental prices have gone out of control as well because of the building boom, and flipping craze here. It’s unfortunate for us young folks trying to get a start in life, not only because of ridiculous rental prices but because the thought of buying a house (which the new regulations make really hard) that will soon sink in value is clearly a set up for later, larger debt when we reach middle age.

    Simon, if you’re out there… what do you think of the new regulations? Will they cool the temptation to give out subprime mortgages, or are they just window dressing?

  130. The Candian banks performed well and are clearly safer, a couple of ratios (which are not entirely comparable anyway) comparing them to the best bank in America prove nothing. Check the Non- PErforming loan nummbers across the whole banking system. Canada took on less risky assets even before you consider the fact that some are insured by the government.

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