from Amazon
Tuesday, June 23, 2009
Canadian banking system
Non-sports post:
CNN and Newsweek magazine commentator Fareed Zakaria joined in. “Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors,” he wrote. “Yup, it’s Canada. In 2008, the World Economic Forum ranked Canada’s banking system the healthiest in the world. America’s ranked 40th, Britain’s 44th.” It all came down to leverage, Zakaria continued: the Canadian banking sector lent out eighteen dollars for every dollar on deposit. US banks had a vertiginous 26-to-1 ratio, Europe a “frightening” 61-to-1. Suddenly, our banks’ irritating tics — the negligible interest rates on deposits, the outrageous user fees, the institutionalized disinclination to lend — were being recast as signs of national virtue.
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But, as Carney noted in a bbc interview, federal regulators also stood up to the big banks when they sought approval to jump into riskier ventures. “They didn’t like that, and they would come in and complain about it regularly, because it was stopping them from doing some of the sexier things that their international competitors were doing,” he said. “But it turns out some of the sexier things that [their competitors] were doing were quite foolish.”
I only skimmed the article so perhaps I shouldn’t comment, but I have my doubts that federal regulators prevented Canadian banks from “[jumping] into riskier ventures” because they so perspicaciously foresaw the impending collapse of these ventures. After all, federal regulators encouraged the use of value at risk models, which are a fantastic tool for misunderstanding your risk exposure and overestimating your financial security. These models have been thoroughly revealed (in my mind) as instruments of delusion.
If the Government agents in Canada did anything right, it was in not implicitly (and then explicitly) providing guarantees that bad loans would be bailed out. Not every American bank went under; just the ones that were most comfortable betting with the Government’s money. The story that Canada simply had the smartest regulators who reeled in those greedy bank execs doesn’t play for me.