Lessons from Canada: Crisis-Proofing a National Financial System

Abstract

The Article compares the financial institutions and financial regulation of the United States and Canada with regard to ten key factors: 1) Financial institution asset size and market concentration; 2) Capital requirements for financial institutions; 3) Prudential regulation structures and policies; 4) Regulatory oversight of the federal Financial Consumer Agency of Canada (FCAC) and the stringency of consumer financial protection measures compared with no separate federal consumer financial protection agency in the U.S. until passage of the Dodd-Frank bill; 5) Real estate market issues, including price trends and foreclosure rates; 6) Mortgage lending policies; 7) Secondary mortgage market structures; 8) Tax policy issues, including the non-deductibility of mortgage interest in Canada; 9) Monetary policy issues, including interest rate policy; and 10) Budget and trade balances. In reviewing these ten factors, the Article shows that the Canadian financial system typically demonstrates a lower risk-appetite, more prudent business practices, and more conservative regulation as compared with that in the U.S..

Keywords: Financial Institutions, Financial Systems, Canada

JEL Classification: G21, G28, K23