Bank towers in Toronto's financial districtMark Blinch
Rather than any alleged stolidity of the Canadian temperament, conscious policy decisions and well designed institutions protected Canadian banks through the international financial crisis. Such policies, however, cannot be complacently taken for granted.
The latest wave in the highly irregular cycle of praise of Canada is probably a result of President Barack Obama's sweeping proposal of Jan. 21 to separate high-risk finance from comparatively routine commercial and depositary banking. In the course of a few days, Paul Krugman, the winner of the Nobel Prize for economics in 2008, said in his New York Times column, "Right now, Canada is a very important role model," and in the weekend Financial Times, that paper's managing editor for the United States, Chrystia Freeland, wrote a substantial and conspicuous feature article titled Canada's Great Escape. They both take the view that it was policy, more than culture, that brought the Canadian financial system safely through the panic of 2008 and 2009.
Ms. Freeland and Mr. Krugman emphasize the Canadian rules on banks' "leveraging," that is, how much (proportionately) banks themselves depend upon borrowing.
But respect for Canada does not mean that the financial district of Toronto is likely to become a major international centre. On the contrary, the competitive eagerness of Wall Street in New York and the City in London to attract more business tempted the United States and the United Kingdom into relaxing their standards. Canada may not benefit from large new inflows of capital, but its stability has become noticeably more appealing to individuals, some of whom would once have thought it was déclassé to take a job on Toronto's Bay Street.
The least obvious element in Ms. Freeland's article is found in quotations from Julie Dickson, the Superintendent of Financial Institutions, on how Canada considers compliance with principles to be more important than fitting into the exact terms of highly detailed rules. This is striking, because Canadian accounting standards for companies in general have often been criticized for being too flexible, not detailed enough, compared with the U.S.
The reconciling explanation appears to be that regulators and banks communicate quite well with each other in Canada. "We want to be told everything that is going on," Ms. Dickson said.
Canadian financial prudence should not be smugly taken as a given, or as a gift of national character. It should be cultivated, and adapted to changing circumstances, but not to changing fashions.