Bloomberg, (September 13, 2013) World’s Strongest Banks, http://www.bloomberg.com/visual-data/best-and-worst/worlds-strongest-banks
Bordo, M., Redish, A., Rockoff, H., (September 2010) Why didn’t Canada have a banking crisis in 2008 (or in 1930, or 1907, or 1893), Paper prepared for EHA Conference, Evanston.
Calomiris, C.W., Haber, S., (March 2013) The Political Foundations of Scare and Unstable Credit, Presented at the Federal Reserve Bank of Atlanta, Atlanta, Georgia April, 2013.
RatingsDirect, (November 13, 2012) A Tale of Two Countries: US And Canadian Banks’ Contrasting Profitability Dynamics, Standard & Poors.
Viñals, José et al, (May 18, 2010) The Making of Good Supervision: Learning to Say “No”, International Monetary Fund, http://www.imf.org/external/pubs/ft/spn/2010/spn1008.pdf
This note was prepared by Jonathan Fiechter, IMF Expert, as part of the Canadian FSAP Update over the course of the summer of 2013. It benefited from the work of the FSAP mission, including in particular the products of the assessment teams that looked at banking, insurance, and securities market supervision and from numerous conversations with past and present government officials and senior officials from the private sector and academia.
The headline from a Wall Street Journal article by Marie-Josée Kravis, “Regulation Didn’t Save Canada’s Banks,” online.wsj.com, May 7, 2009.
See for example, “Know Thy Neighbor: What Canada Can Tell us about Financial Regulation”, John Courtney and Pietro Nivola, Brookings, April 29, 2009.
The Treasury Board is broadly responsible for accountability and ethics, financial, personnel and administrative management and comptrollership in the federal government.
OSFI has the power to act independently by virtue of its categorization as a separate agency (Schedule V of the Financial Administration Act (FAA)), and the delegation of powers to Superintendent. The Superintendent may determine the terms and conditions of employment, with periodic reporting to the Public Services Commission (PSC) to demonstrate it has complied with the PSC’s framework and policies.
“Australian and Canadian Major Banks”, Fitch Ratings, January 30, 2012 notes that OSFI is “widely regarded as being conservative…applying higher capital requirements…than suggested under the Basel rules” and in “advance of the GFC” which is indicative of “a more active and conservative approach to supervision.”
“Canadian banks top choice for U.S. money market funds”, Financial Post, John Shmuel, October 20, 2011.
The sharing of confidential institution-specific data means the securities regulators cannot easily be involved in this group.
The life and segregated funds sector represents some 16 percent of the Canadian financial sector. The top three Canadian institutions, all of which are supervised by OSFI, held 76 percent of total Canadian life insurance assets in 2012. The property and casualty market, which has a number of foreign players and a large group of provincially supervised institutions, represents only 2 percent of the financial sector market.
OSFI has entered into Memorandums of Understanding (MoUs) with more than 30 foreign counterparts. CDIC recently obtained the legislative authority to share member-specific institution obtained from OSFI with relevant foreign authorities subject to a condition that the Superintendent and the CDIC Board agree with the release of the information.
CDIC increases contributions from banks which exceed 85 percent of their maximum leverage ratio.
Four of the banks proposed merging into two banks in 1998 but government did not grant approval. This prevented the banks from increasing to where they were able to match the size of the big global banks. Some analysts believe that this inability to grow may have protected them from some of the excessive levels of risk exposure that was assumed by much larger global banks ahead of the crisis. “Canadian Banks 2008, Perspectives on the Canadian banking industry”, Pricewaterhouse Coopers.
The widely held rule is seen has having “dampened competition in the banking market and allowed the big banks to operate without fear of foreign takeovers, “The Political Economy of Canada’s “Widely Held” Rule for Large Banks”, Eric J Gouvin, New England University School of Law, 2001.
The policy of preventing mergers between large banks ensures there are sufficient participants to support competition.
The exceptions are the Provinces of Alberta and Saskatchewan. The Province of Alberta does not always offer recourse to lenders, based on the vintage and nature of the loan. In Saskatchewan, recourse only applies to refinanced mortgages. (See “Canadian Mortgage Market Primer”, in Market Musings, TD Securities, July 5, 2010.)
The Government also backs private mortgage insurers’ obligations to lenders subject to a deductible equal to 10 percent of the original principal amount of the mortgage loan. In the event of a private mortgage insurer’s winding-up, the Government would honor lender claims for insured mortgages in default, subject to the 10 percent deductible and any applicable liquidation proceeds. There are two active private mortgage insurers in Canada.
The strong economy and conservative federal fiscal policies are also factors.