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The Links
- For the second year running, the World Economic Forum has ranked the Canadian financial system as the soundest in the world. (It's a decidedly lower bar these days, no?)

- Paul Krugman tries to explain why this is the case in his weekend editorial, but in his effort to create a narrative he misses some important points.

- For a more comprehensive look at the issue, Chrystia Freeland does the job well.

Missing from all of these summaries, however, is one minor niggling point: had the US not bailed out some of its major financial institutions, the story in Canada could very well have been very different.

A few thoughts
The lesson of Canada is not one easily grafted on to major banking sectors like those in the US and UK. Underlying all of this prudent banking is a fundamental lack of competition, both domestic and foreign - something that simply would not fly in any city aspiring to be a global financial hub. To a certain extent, the ease with which Canadian financial institutions have access to American markets has given them space to take a more conservative approach. And while the lack of competition may be stable, it's not something the customers of Canadian banks are always the beneficiaries of, either.

I recently read a US Congressional research report attempting to draw lessons from the Canadians for American banking reform efforts. One of the most noticeable contrasts is between Figure 1 and Figure 2 in the report. Compared to the relatively simple and centralized regulatory structure in Canada, the flow chart of the US system is reminiscent of that ridiculous COIN graph. Nevertheless, the report concludes that, essentially, the Canadian system works pretty well in Canada but is heavily context-specific. There are good lessons to be learned, but they are not easily transferable elsewhere. Sorry.