OSFI has republished a puff-piece written for Central Banking magazine, titled Lessons for Banking Reform: A Canadian Perspective, by Carol Ann Northcott & Graydon Paulin of the Bank of Canada and Mark White of … OSFI.
Credit for Canada’s performance throughout the crisis is given to:
- High levels of capital
- A rational mortgage market
- relatively low Loan-to-Value
- Recourse to borrower
- Non-deductability of interest
- Assets-to-Capital (ACM) multiple control
- lack of competition from shadow banks
- The wise and beneficient supervision of those sadly underpaid geniuses (genii?) at OSFI
Not much meat on these bones, frankly. I would have been much more interested in a solid analysis of just WHY we were so lucky. Why weren’t the banks up to their necks in sub-prime paper, like everybody else? Was it the ACM? Was it because Canadian banking is such a profitable rent-extraction machine that banks didn’t need to lever up on Sub-prime at LIBOR+50? I find the idea that “Canadian Bankers are Smart” rather difficult to swallow. We nearly went bust in the MBA crisis of the 1980’s … we’ll find something else soon, don’t fret.
And why are we so highly capitalized, anyway? It has been very useful in the downturn, there’s no denying that … but what are the net, through-the-cycle cost/benefits of tying up a lot of capital in the banking system?