Canadian Strength in Financial Crisis:  Higher Standards Count

Much was learned about banking systems and procedures from the recent global economic crisis. Canada's relative strength during the recent global financial crisis can be explained by several factors, not the least of which are higher standards for banks that exceeded international requirements; this according to Mark Carney, Governor of the Bank of Canada, who reported to the International Centre for Monetary and Banking Studies in Geneva last month.

Specifically Canadian banks have higher capital requirements, are subject to greater supervision and more stringent mortgage regulation, than prescribed by international standards. In addition, the ownership of mortgage liability stayed with the bank in the majority of cases, rather than being bundled up and sold as a security. Requirements for mortgage insurance through CMHC and other sources offered additional protection. Finally, the absence of mortgage interest deductibility here in Canada has also been an important factor, as this can be an incentive to take on too much debt.

The speed at which weaknesses in financial institutions and their regulation spread from continent to continent illustrates the importance of global reform, said Mr. Carney, concluding his address with a call for action. Reform, he said, will be a dynamic process and all participants will have to identify and address weaknesses as they strive for stability in the immediate future.

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