Managing Risk in the Financial System
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Managing Risk in the Financial System

Edited by John Raymond LaBrosse, Rodrigo Olivares-Caminal and Dalvinder Singh

Managing Risk in the Financial System makes important and timely contributions to our knowledge and understanding of banking law, financial institution restructuring and related considerations, through the production of an innovative, international and interdisciplinary set of contributions which link together the law and policy issues surrounding systemic risk and crisis management.
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Chapter 5: Why is the Canadian Banking System so Remarkably Stable? A Comparative Analysis with the US

Jean Roy, Rima Turk-Ariss and Yenni Redjah

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5. Why is the Canadian banking system so remarkably stable? A comparative analysis with the US Jean Roy, Rima Turk-Ariss and Yenni Redjah During 2009, the US experienced a major financial crisis that spread to several major European countries. Government had to bail out the banking system with unprecedented financial measures. At the same time, Canada showed its banking system had great resilience and stability. This remarkable performance was noted by several international organizations such as Moody’s and the World Economic Forum. The contrasting behaviour of the two banking systems is indeed quite surprising given their common Anglo-Saxon heritage and the high level of integration of their economies. This situation raises the question of finding the causes explaining the differences in the behaviour of the two banking systems during the crisis. Thus, our objective is to review the possible explanations for the better performance of the Canadian banking system relative to its American counterpart during the latest period of financial turmoil. Hopefully, this exercise can identify lessons that can be helpful in preventing systemic risk and fostering financial stability. The chapter proceeds as follows. First, it will document the striking differences of behaviour of the two banking systems both from a public and a private point of view. Secondly, it will explore to what extent the higher level of market concentration in Canada can provide an explanation. Finally, it will look at regulation and the financial behaviour of both banks and borrowers as potential explanatory factors. 5.1. CANADA AND THE...

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