You Can Bank On Canada (RY, TD, BNS, CM, BMO) | March 24, 2009 |By Will Ashworth - Investopedia Advisor Within just 10 years, 4 Canadian banks are now amongst the top 10 banks in North America. This is, in part, due to the failure of some (to the tune of 17 so far in 2009) banks in the U.S., but it is also because of Canada's conservatively regulated banking system, which is ranked the best in the world by the World Economic Forum (the American system is ranked 40th). So what I'd like to explore here is the contrast between the Canadian and American systems. What is probably amongst the biggest differences between the two systems is related to regulation. I'm not about to go down a laundry list of comparisons in detail, but what I'd put forth here is that the right kind of regulation is a good thing. Regulation in this context is the regulation of risk for the benefit of stability and security. Canadian banks have weathered this economic storm relatively well so far. Do you think the current status of American banking is a result of weaknesses in the banking system or is it mainly due to wider economic factors? Should the American system take a chapter (or far more) out of the Canadian system? Within such an economic juggernaut as the American economy, why is the American system ranked 40th by the World Economic Forum? If the American system had been akin to the Canadian system, would those 17 banks have failed by this point? Does this article change your opinion of regulation? How or why not? I'm a bit stoned and I'm not sure if this is the right forum for this but I don't think we have an Economics Section.
I don't know much about banks,so I can only answer a small part of your question.When it comes to ANY big business,I feel alot more comfortable doing business with them if they are 'properly' and highly regulated.DE-regulation has proven to be a DE-saster for the US.The US must go back to what used to work well,and again thats proper but strict regulations.---At this point I would rather deal with a bank in Canada,or for that matter banks in Western Europe.
America has turned into the big 'slow' kid on the block.You know the teenager that's physically strong,but stupid .And all his peers have surpassed him,look down on him but at the same time feel sorry for him.
Once the American economy goes under, the Canadian economy will too. In a global economy everything is interconnected. Really, the article is not saying much because what we are seeing now has a lot more to do than with simply the individual banks.
And as far as regulations go, nothing needs to be regulated more than the Federal Reserve that prints the money through a system called fractional reserve banking, which allows the pyramiding of money, which is ultimately what causes the problems. The individual banks can lend only according to what the Fed allows. The individual banks themselves really have little to do with anything when looking at the bigger picture.
Well, the Canadian economy is based on really old and boring methods of collecting revenue. Our financial system is so boring, people never want to hear about it. The secret's in the pudding. We forbade zero down mortgages from happening and averted that overall lending and CD fund top down spill fiasco. Our banks responded early and cut interest rates. Our steel mills and jobs aren't all closed down and ghost towns like they are in regions of the USA, and we have a pretty stable raw material and manufacturing industry. But we're not immune. Our job auto-manufacturing sector took hard blows, and our steel workers tightened their belts. You'd think that we would be suffering like our neighbours to the South are, since you know, according to the majority of Americans we are a cyst-like country that lives off their economy, right? I found this news article to be very interesting and revealing about Canadians: http://www.cbc.ca/canada/story/2009/03/24/environics-report.html Not nearly enough Americans blame George W Bush for their economic situation. The day that Americans "re-elected" Dubbya was the moment I knew the US economy was going to go into recession. You can't have an off-shore war and occupy another country while cutting taxes, and let the corporate world dominate in all economic affairs. Thankfully, the Canadian Federal Government at the time of 2002 when the Iraq war began, was not under a Conservative Party Government who would have sent us to war with y'all. Our Prime Minister said "No", and we took a lot of shit from you guys who were still foaming at the mouth from 9-11. We were called cowards by the Bush Administration like the rest of Europe was. Left a real sour taste in everyone's mouth. Then of course, the USA refused to take our beef long after the mad cow disease outbreak was over, and we almost saw our industry nearly collapse. But what did we do? We bailed ourselves out. We took on more protective measures and started selling the beef domestically to ourselves. The USA refused to pay us billions of dollars in softwood lumber under NAFTA agreements, and essentially told us to fuck off and bite the bullet. We lost revenue on that and the lumber industry was rightfully pissed. So what did we do? The Liberal Party lost an election and the Conservative Party earned a minority government. We re-worked our industry and expanded our horizons for different trade partners who would buy our lumber and pay us honestly. Canada has many economic ties to Europe - throughout history, we strengthened and nurtured some of our ties with Europe when the USA might have had reasons to sever them. French-Canadians have a unique little pocket of growing industries that do business with France and many other French-speak countries, so the networking is all there and quite strong.
Some figures on what's been happening in Canada so far and what we are doing to get out of recession: http://www.cbc.ca/canada/story/2009/03/25/ottawa-deficit.html
The Ontario Government is looking at passing tax reforms by merging PST w/ GST. (Provincial Sales Tax with [Federal] Government Sales Tax). I wish that I studied more about tax reform, because this could make or break the future of taxation. http://www.cbc.ca/canada/toronto/story/2009/03/25/ontario-budget.html
Canada's stock markets are down, its economy is shrinking, unemployment is up, and property prices are falling. The difference is that systemically important banks and insurers are not failing. Many people point to "regulation" as the difference, but ask them to name one banking regulation that applies differently in the US and Canada and they struggle. I can think of a few things. For one, interest on mortgages has no tax benefit in Canada. This is a stupid middle class tax subsidy that contributes to inflated house prices. Two, the US has no recourse mortgages, which means if you default the bank can't come after your other assets. This obviously incentivises people to take ridiculous mortgages since the downside is all for the bank. I wish we could trust banks to figure that out, but apparently they had to learn the hard way. Three, Canada does not have Fannie and Freddie, two monsters that blew as much air into the bubble as they could. They should be taken behind the barn and shot.
I'm surprised that you feel the way you do about mortgage tax benefits. Most people would like the opportunity to have them here in Canada, but we don't for that reason.
As to the mortgage tax brakes that the US has is why? If they really want'd to help people than rent would also be included. The US condems us for our taxing but there are many parts wrong on both sides of the border. They don't like us subsidising forest products, but they subsudize agriculturale products. What is the right way? Either one depending on the countries involved. The US is trying to use it's influence as a super power to create one set of rules for the world, the US rules. As long as they try that I am at war with them. No single set of rules will work for everybody every time. To suggest it will is a hope, or more likely a mental problem.
I think Canada is certainly doing a better job controlling their money, but I still see it as the same basic systemic problems, only in smaller quantities due mainly to increased regulation. Banks should be nationalized and should not make a profit. They should be for storing and accessing your own money, should be 100% backed, and should be paid for in taxes (and judging by Medicare, the administrative costs shouldn't be anywhere near as high as they are in the private sector). If you want to invest money, you should remove your money from your bank and invest it elsewhere. Had we used this model back in the 1920s, we would have avoided the depression almost completely.
Except for the part about taxes, this banking business model has been around for more than 100 years in the US, but has never caught on in a big way. This is essentially the way that credit unions operate today. Savings and loans - now mostly extinct - had a similar conservative philosophy throughout their existance. The state credit union model works well for basic savings and for loans to individuals, and do not require any kind of external operating subsidy. In fact, they usually pay higher savings interest rates than what you can get from a for-profit bank. They are quite efficient. The problem with extending this concept to the entire national banking system is that these conservative institutions have little incentive to get involved in making loans to start-up businesses or large corporations. The opportunity for growth in profits is the driving force that makes the big banks hire business analysts to manage that side of their loan business. That whole process grows the economy and creates jobs. For-profit banking worked well for this country before excessive deregulation took hold. I am an example of a businesswoman who would not own her own successful business today if a large bank had not taken a chance on me many years ago. All that is pertaining to American banks. I don't know enough about the Canadian system to comment, except that I will say that they appear to be similar to what US banks were like before deregulation ran wild here. Regulatory reform is what we need now, just like in 1929.
There is a simple reason. All interest on loans used to be tax-deductible here. When they started getting rid of deductions to simplify taxes and eliminate loopholes, they had two big reasons to leave mortgages alone. First, eliminating that tax break would have impacted too many voters, so nobody in Congress wanted to vote for it. Second, it involves a large amount of money for most people, so changing the rules suddenly would have meant financial disaster for folks who made plans based on the assumption that nothing was going to change with the deduction. I know what you are saying about rent. If they wanted to be fair and reasonable and helpful to the poor, they would also need to exempt from taxes all basic necessities, including food and clothing. It is a lot simpler to accomplish the same goal by getting rid of nearly all deductions and lowering the tax rate on the working poor. The only way that the mortgage deduction is going away is if a lame duck president signs it on his way out the door. If it was phased out over several years, the impact would not be catastrophic.
