As U.S. officials scramble to prevent a crisis sequel, the ability of Canadian banks to navigate the current financial storm is earning global plaudits. The World Economic Forum in October ranked the country's financial institutions No. 1 in the world for solvency. U.S. banks came in 40th, two rungs behind Botswana.
Praise for the Canadian regulatory approach has come from former Federal Reserve Board chairman Paul Volcker as well as the head of the National Economic Council, Larry Summers. "Canada has come through this period with much less financial damage than we suffered. ... I think there are some lessons in financial regulation to be gained from what's happened in Canada," Summers told USA TODAY in a recent interview.
Indeed, Canada's experience is reflected in elements of the Obama administration's proposed revamp of financial industry regulation, the most sweeping set of changes since the 1930s. One example is an increase in the capital buffer required of financial institutions, especially those whose failure would threaten the entire system. Canadian banks must maintain high-quality capital reserves beyond international standards, thus limiting the banks' use of borrowed funds for investments. (Such leveraged financial bets magnify gains if they pay off — or losses if they don't.)
"The proposals the Obama administration have come up with are certainly along the lines of our thinking," says Mark Carney, governor of the Bank of Canada.
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