So what saved Canada\u2019s banking system? Government guarantees, say Mr. Boone and Mr. Johnson. \u201cToday over half of Canadian mortgages are effectively guaranteed by the government, with banks paying a low price to insure the mortgages.\u201d<\/p>\n
The other big factor is the cozy relationship between the regulators, the Bank of Canada and the individual banks. \u201cThis oligopoly means banks can make profits in rough times\u2014they 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.\u201d<\/p>\n
Mr. Boone and Mr. Johnson will no doubt draw flak for their smackdown of Canadian bankers, but they\u2019re right. Despite all the public crowing over Canada\u2019s supposedly brilliant bankers, it\u2019s difficult to argue that bankers themselves deserve much of the credit for weathering the recent storm so well. (If Canadian bankers are so inspired, why aren\u2019t global banks lining up to hire those genius Canucks? And why aren\u2019t Canadian banks dominating world markets?) It\u2019s even harder to argue that we Canadians have some uniquely conservative twist to our character. (In fact, our household debt-to-income levels look strikingly similar to those of Americans.)<\/p>\n
But where it is possible to take issue with Mr. Boone and Mr. Johnson is in their outright rejection of the big bank idea. What Canada\u2019s example demonstrates is that regulators and banks can settle into a reasonable co-existence\u2014one in which highly regulated banks are allowed to earn larger profits than their competence deserves on the condition they don\u2019t do anything truly stupid. <\/p>\n
In many ways, this amounts to a public utility model of banking. Canadians endure mediocre customer service from our coddled banks. In exchange, we face a low risk that our highly regulated banks will go bust. This seems like a decent compromise. Despite what Mr. Boone and Mr. Johnson say, it\u2019s a compromise that could work in the United States as well.<\/p>\n
Freelance business journalist Ian McGugan blogs for the Financial Post.<\/i> <\/p>\n
<\/p>\n","protected":false},"excerpt":{"rendered":"
The stability of the highly concentrated Canadian banking system during the recent financial crisis has led some commentators to seize on the idea that what the United States needs is more big banks. But moving in that direction would be a huge mistake, according to Peter Boone of the London School of Economics and Simon […]<\/p>\n","protected":false},"author":4060,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-471152","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/471152","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/4060"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=471152"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/471152\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=471152"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=471152"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=471152"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}