ABSTRACT
In an increasingly complex world of finance, simplicity and conservatism worked well in Canada. Canada is evidence that stronger financial regulation can lead to financially stable and successful outcomes through entire economic cycles of boom and bust (Porter 2010). No Canadian bank experienced a bank run nor was any government bailout required. Moreover, banks continued to lend money when, across the border, US banks were unable to do so due to a liquidity freeze. Although the US and Canada share a border and have close bilateral relationships in trade, the differences between the US and Canadian financial regulatory structure and their experiences during the financial crisis of 2007-9 are stark. There was relatively little damage done to the Canadian financial system for a plethora of reasons, including the economic history of the Canadian financial structure and framework, good compliance with the Basel III Accord, an extensive branching network which gives financial stability, a conservative funding model with short-term debts, a relatively simple financial regulatory structure, strong prudential regulation and supervision by one prudential regulator, regular updating of financial legislation, a well-designed system of deposit insurance, crisis management of failed banks and less interconnection amongst banks than in the US because of the originate-to-hold model (Anand 2010; Jackson 2013). Most importantly, Canadian investment dealers were regulated by the same rules as commercial banks, and the law regulating the Canadian mortgage market was strict, thus reducing the exposure of Canadian banks to the problems associated with sub-prime mortgages (Mohsni and Otchere 2014). All these reasons did not happen overnight. A steady history of sound and prudent regulation and supervision by the Office of the Superintendent of Financial Institutions (OSFI) coupled with sound, long-term monetary and fiscal policies have had a positive impact on the Canadian financial system.
