Canada's Economy
Why Canada's Banks Survived 2008
How Canada's concentrated, conservatively regulated banking system avoided failures in the 2008 crisis, and the trade-offs of a few big banks.
In 2008, while US and European banks failed, no Canadian bank needed a bailout.
Structure
Canada’s banking is dominated by the Big Five: RBC, TD, Scotiabank, BMO and CIBC.
Why they survived
- Conservative regulation by OSFI.
- Higher capital requirements.
- Mortgage insurance: high-ratio mortgages must be insured, and rules limited risky lending.
- Less securitisation of subprime loans.
- Full recourse mortgages: borrowers remain liable if they default.
Trade-offs
- Concentration can mean less competition and higher fees.
- Banks are “too big to fail”, relying on government backing.
Recognition
The World Economic Forum rated Canada’s banks among the soundest in the world after 2008.
Lesson
Prudent regulation can make banking systems resilient.
The insured mortgage
A Canadian buyer with a small down payment must buy mortgage insurance, and banks must check she can afford higher rates, reducing risky lending.
Thinking all banking systems failed in 2008
Canada's banks came through without bailouts.
Key takeaways
- No Canadian bank needed a bailout in 2008.
- The Big Five dominate Canadian banking.
- Conservative regulation and mortgage rules helped.
- Concentration reduces competition.
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