Over the summer, we featured a piece from Brian Lee Crowley, Jason Clemens, and Niels Veldhuis based on their book, The Canadian Century, arguing that the free market reforms Canada had instituted since it was described as "an honorary member of the Third World" by the Wall Street Journal in 1994 had put it on track to be a global economic leader in the 21st century. Reflecting on Prime Minister Wilfrid Laurier's 1904 prediction that "the 20th century shall be filled by Canada," the authors mused that "perhaps Laurier was not wrong, just 100 years early."
A story from McClatchy today suggests that tough financial regulation may be as much a part of the Canadian economic success story as spending cuts and benefits reforms:
Not a single Canadian bank failed during the Great Depression, and
not a single one failed during the recent U.S. crisis now dubbed the
Great Recession. Fewer than 1 percent of all Canadian mortgages are in
arrears.
That's notable given that the recent U.S. economic
turmoil was triggered by a meltdown in mortgage finance, forcing an
unprecedented government rescue of Wall Street investment banks and the
collapse of more than 300 smaller banks as the housing sector went bust.
How'd Canada avoid all that?
"This sounds very simple, but one of our CEOs has said we are in the
business of making loans to people who will pay them back," said Terry
Campbell, vice president of policy for the Canadian Bankers Association
in Ottawa.[…]
Even so, there's
plenty to learn from Canada's conservative — yes, conservative —
regulatory regime. It requires more rigorous loan underwriting
standards and much bigger set-asides by banks for potential losses
during market downturns.
Canada also lacks a big tax write-off
for the interest that borrowers pay on their mortgages. They get a
capital gains tax exemption on any profits on the sale of their primary
residence, and that's it. Yet the rate of home ownership in Canada is
equal to, or greater than the U.S. rate, and the lack of
mortgage-interest deductions leads Canadians to swiftly pay down their
mortgage debt.
On the other hand, maybe Captain Canada (Hat tip: Matt Yglesias) has just been working overtime to prevent mortgage defaults.
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