Professor Mark Perry enumerates 8 reasons why Canadian banks has proven to be repeatedly resilient during crisis times and has outperformed its US contemporaries.
The scoreboard:
Number of bank failures during the 1930s: United States: 9,000, Canada: 0
Number of Bank Failures during S&L crisis (1980s-90s) United States: Almost 3,000, Canada: 2
Number of Bank Failures during the Great Recession (2007-2010) United States: 196, Canada: 0
Delinquency Rate for Home Mortgages in December 2009 United States: 9.47%, Canada: 0.45%
The 8 Reasons:
1. Full Recourse Mortgages in Canada.
2. Shorter-Term Fixed Rates in Canada
3. Mortgage Insurance Is More Common in Canada than in the United States.
4. No Tax Deductibility of Mortgage Interest in Canada.
5. Higher Prepayment Penalties in Canada.
6. Public Policy Differences for Low-Income Housing.
7. Differences in Canada’s Bank Concentration and Greater Diversification.
8. A Few Other Differences that Contribute to Bank Safety in Canada.
Bottom Line: Taken together, the features and regulations of banks in Canada outlined above create a healthy and sound “pro-lender” environment absent of political motivations for outcomes like greater homeownership, compared to the often politically motivated “pro-borrower” and “pro-homeowner” policies of the United States. While Canada’s banking system has promoted responsible borrowing and prudent lending and underwriting practices with little politically motivated interference, the U.S. banking system seems to have encouraged excessive lending to risky borrowers because of the political obsession with homeownership.(emphasis added)
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The scoreboard: Number of bank failures during the 1930s: United States: 9,000, Canada: 0
Number of Bank Failures during S&L crisis (1980s-90s) United States: Almost 3,000, Canada: 2
Number of Bank Failures during the Great Recession (2007-2010) United States: 196, Canada: 0
Delinquency Rate for Home Mortgages in December 2009 United States: 9.47%, Canada: 0.45%
The 8 Reasons:
1. Full Recourse Mortgages in Canada.
2. Shorter-Term Fixed Rates in Canada
3. Mortgage Insurance Is More Common in Canada than in the United States.
4. No Tax Deductibility of Mortgage Interest in Canada.
5. Higher Prepayment Penalties in Canada.
6. Public Policy Differences for Low-Income Housing.
7. Differences in Canada’s Bank Concentration and Greater Diversification.
8. A Few Other Differences that Contribute to Bank Safety in Canada.
Bottom Line: Taken together, the features and regulations of banks in Canada outlined above create a healthy and sound “pro-lender” environment absent of political motivations for outcomes like greater homeownership, compared to the often politically motivated “pro-borrower” and “pro-homeowner” policies of the United States. While Canada’s banking system has promoted responsible borrowing and prudent lending and underwriting practices with little politically motivated interference, the U.S. banking system seems to have encouraged excessive lending to risky borrowers because of the political obsession with homeownership.(emphasis added)
Read the rest here
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