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Friday, May 08, 2009

Canadian banking is better

For those who claim an under-regulated lending market in the U.S. caused the housing bubble, I submit a few facts about Canadian banking from Nick Rowe via Tyler Cowen:

1. We never had restrictions on interstate banking, so Canadian banks spread their assets and liabilities across Canada. (So it doesn’t matter if a local housing market goes bust).

2. We don’t have Glass-Steagal. The investment banks joined the retail banks some years ago.

3. We don’t have mortgage interest deductibility from taxes. So paying down your mortgage is a tax-free investment. So most people want to pay down their mortgages.

4. (Except in Alberta), mortgages are fully recourse. You can’t just walk away from a negative equity home and hand the keys to the bank; the bank will come after you for the difference.

Those are some pretty good reasons the housing bubble didn't do to Canada what it did to the U.S.  Also notice every one of these differences in Canada's favor represent fewer regulations than in the U.S.  No restrictions, no Glass-Steagal, no manipulated tax code to artificially incentivise "the American Dream" of home ownership.  Number four may seem like a stricter regulation, but I would argue even that is not a regulation, but simply a better protection of property rights (I didn't even know Canada had those!).

I'm sure you Canucks could tell me more about the problems of Canadian banking, but as Yankee I am envious of the short list above.

Posted by Isaac Morehouse on May 8, 2009 in Economic freedom | Permalink



You're right on every point. I would also add that the Bank of Canada simply printed less money than the FED.

The Canadian banking system is an oligopoly (the gov't tightly controls licences). They make huge profits as opposed to their American counterparts in the good times. So we get gouged (big time) but at least don't have to bail them out during recessions.

Posted by: Charles | 2009-05-08 7:48:21 AM


You are basically right on point 4. The US not allowing (or not enforcing) recourse mortgages is a restriction on the right of free contract. As far as I know, there is nothing in Canadian law that prevent a non-recourse mortgage, if borrower and lender agree. For example, I think if I go to a pawnshop and borrow against the security of my watch, I can walk away from the loan, and let them keep my watch. This is a non-recourse loan by mutual agreement.

I would rather describe it in terms of right of free contract than in terms of property rights, though it's basically the same. People nowadays forget the "fundamental human" right of free contract.

Posted by: Nick Rowe | 2009-05-08 8:22:01 AM

Canadian Banks are not the government, but they pass themselves off as " government like", sort of like the insurance companies do. Canadian Banks are closer to Canadian living than the Cdn Govt could ever be-

everybody gets courtesy but the more money you have, the more respect you get.. deals and perks,, faior enough

there are no annoying flags, cultural symbols or seals full of angry eagles or lions, fire, lightening, stars, crowns shoved in our faces -- we let the casinos handle all that

neither French or English is not forced on us in a Canadian bank, - ones sexual orientation, marital status, level of education, grooming or coolness is not a factor- what is a factor is SHOW ME THE MONEY.

best of all- Canadian Banks say PLEASE and THANK YOU- even if you are denying you a loan or forclosing on your home.

only complaint about Canadian banks is they no longer give out gifts for starting up new savings accounts--heck, how else was a single guy gonna get a steam iron, a toaster or a coffee maker without getting married ?

Posted by: 419 | 2009-05-08 8:25:33 AM

The fact of the matter is the US REPEALED Glass Steagall in 1999.

So, in effect, it's a moot point that Canada is superior to the US because it does not have Glass Steagall.

Neither does the US.

Both the House and the Senate voted overwhelmingly to repeal the act, so it's disingenious to blame one political party or the other.

Both parties in Washington had their fingerprints all over the ‘look the other way' policy they unleashed.

Capitalism is based on trust, while human beings always find ways to bend the rules. It's what makes America great.

In retrospect, the housing bubble and its subesquent crash should have been predicted.

Posted by: set you free | 2009-05-08 9:27:13 AM

Living in the same State as Microsoft, ironically, I have found that US Banks are not as technologically savvy as Canadian Banks, particularly in the area of on-line banking.

Perhaps the lack of competition from the Charter cartel has allowed a higher level of capitalization in Canadian Banks.

Posted by: John Chittick | 2009-05-08 10:41:26 AM

An amazing and interesting fact about Canadian banks that appears to separate them from their American counterparts is that, surprisingly enough, they don't like to lend you money if they don't think you can pay them back. Revolutionary I know, but there it is.

Posted by: B clarkson | 2009-05-08 11:20:27 AM


There you have nailed the difference between the Canadian banking system and the US system that allowed the housing bubble.

Thankfully, the Canadian government has not enacted laws whereby it is illegal to refuse money to people who have no inciomes or no jobs.

The US mess is something that was created by the political class, which is becoming even more disconnected from We The People under the Obama administration.

Posted by: set you free | 2009-05-08 11:46:54 AM

Thanks to Obama and friends in 1997 when he was suing Citibank on behalf of ACORN for "discriminating" against the financially irresponsible.

Posted by: John Chittick | 2009-05-08 12:03:07 PM

Right you are B. I recall more times than once people complaining (myself included) about our banks being too conservative compared to American banks. Thank goodness now for their conservative banking practices.

Posted by: Alain | 2009-05-08 12:05:53 PM

Well, that's great for Canada, but de regulating in the US is the big CAUSE of the economic crisis. That and the untethered greed of the bankers and marketeers that abused every possible loophole or changed laws and regs to suit their needs. Not to mention the big money pay offs to politicians to help make it work. Hmm most of that in the last 8 years.

Unregulated markets and banking caused the first Depression, that is what those regulations were for and they worked until they were dismantled.

Way to go canada, though, maybe they just aren't as greedy...

Posted by: mikearama | 2009-05-08 2:01:38 PM


Do you have any idea what real deregulation would mean? I would mean getting rid of the central banks. It would mean doing away with laws that make it possible for banks to lend out your deposits. How in the world can you logically argue that deregulation caused this mess when the entire banking system is regulated and controlled by central banks? Even worse, you had government controlled entities going around guaranteeing everything under the sun.

Btw, I wouldn't pat ourselves on the back yet. I was just speaking to an insider of the banking industry and he confided in me that since the flood gates were opened for the CMHC securitization program, the banks have been piling a "bunch of shit down the pipe in massive quantities".

Posted by: Charles | 2009-05-08 2:23:56 PM

Charles makes note of something important here.
We are "all of us" living under the rule of central banks. One of the great mysteries of our time is who owns those central banks? Because "that" is who our governments work for.
Government doesn't set policy...they simply implement it on behalf of the money changers.
And you're money can be changed into worthlessness at the drop of a hat...

"I care not what puppet is placed on
the throne of England to rule the Empire, ...
The man that controls Britain's money
supply controls the British Empire.
And I control the money supply."
~Baron Nathan Mayer Rothschild

Posted by: JC | 2009-05-08 11:50:23 PM

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