Americans can learn from Canadian banking system

By Laurie Bennett

September 20, 2010 at 8:50am

Once again, Canada has surpassed the U.S. in a ranking of the world’s safest banks.

Six of the institutions on Global Finance’s list of the 50 safest banks are based in Canada. Four Canadian banks made the top 25. (While five U.S. banks made the list of 50, none was in the top 25.)

Many Americans admire our northern neighbors for their thriftiness and aversion to risk. Just a few see Canada’s financial workings first-hand by holding posts on the boards of Canadian banks.

The Muckety map above shows current bank directors with U.S. addresses. Among them:

  • Gordon D. Giffin - Canadian Imperial Bank of Commerce. Giffin is a former U.S. ambassador to Canada. He also serves as a director of the Canadian National Railway Company.
  • Irene Miller - TD Bank Financial Group. Miller heads an investment firm, Akim, Inc. She is also a director of Coach Inc. and Barnes & Noble.
  • Wilbur J. Prezzano - TD Bank Financial Group. Prezzano is former vice chairman of Eastman Kodak and current chairman of Lance, Inc., a snack food company. He also sits on the boards of EnPro Industries and Roper Industries.
  • Leslie Rahl - Canadian Imperial Bank of Commerce. Rahl heads her own risk-management firm in New York, Capital Market Risk Advisors. She knows quite a bit about risk, having previously been co-head of Citibank’s derivatives group in North America.
  • J. Pedro Reinhard - director of Royal Bank of Canada. Reinhard, a former executive VP of Dow Chemical, is also a director of Colgate-Palmolive and the life sciences company, Sigma-Aldrich.

Although the U.S. could certainly learn from the Canadian model, there are major differences in politics and culture, two researchers concluded last year issued in a paper issued by the Brookings Institution.

Pietro S. Nivola, a senior fellow at Brookings, and John C. Courtney, a professor at the University of Saskatchewan, note that Canada’s banks are more closely regulated. Canada did not experience the housing bubble that occurred south of the border. Mortgage interest in Canada is not tax-deductible.

The changes required to embrace the Canada model are unlikely to occur in the U.S. political system, they write:

Eliminate mortgage-interest deductions? Forget it. Temper the pursuit of what the Left calls ‘affordable’ homeownership, or what the Right calls the ‘ownership society?’ Fat chance. Shift more of the tax burden’s target from earnings to consumption? Don’t hold your breath.

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  • #1.   bordway 09.21.2010

    Canada surpassed the US in the list but your problems are far from over; in fact they’ve just begun. Thanks to a maintenance of low interest rates, the economy was kept afloat by the housing market. Interest rates were rock bottom and the word was buy buy buy, driving house prices out of sight in at least 3 of the 6 major markets. By a stroke of the government wand banks were protected from debt throughout 2007-09 when mortgages were handed directly over to CMHC. Of course when banks assume no risk it looks great on paper, but the question remains who assumed it? It didn’t just go away. That risk was saddled directly onto taxpayers, and when prices fall as interest rates rise and markets lock up, people will find themselves underwater with stagnant wages and unable to afford the higher payments.

    Since you can’t print more money, what will these superior banks do?

  • #2.   Geoff 09.25.2010

    What you are forgetting (or don’t know) is that Canadian banks didn’t make risky loans like their US counterparts. No sub-prime loans, no option-arms, NINJA loans. Most lenders in Canada required a minimum down payment before buying a home. And unlike the US, you can not walk away from your mortgage in Canada. Your on the hook to pay it back - regardless of wether or not you actually live in it. You also have to take out mortgage insurance before signing on the dotted line. Point being, while Americans took out second mortgages and used their homes as a bank machine to buy products from China and live the good life with excessive cars and homes and gadgets, Canadians were more cautious and look where we are today. America’s economy is in the toilet, your real estate market is going to fall even further, stimulus programs are only prolonging the inevitable. A total collapse of the American financial system. But maybe you can just print your way out of the problem? Like say, Zimbabwe…? Best of luck USA!

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