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The relative health of the Canadian banking system has been getting a lot of attention these days. Yves Smith notes with approval the "decidedly retro" nature of the system while referencing a NYT op-ed that praises "The Great Solvent North." On a bigger scale, the Europeans seem to have latched on to the success of Canadian banking system as a guide for banking reform - they may very well use it as a stick with which to beat the Americans over the head while promoting their new joint economic agenda for the G20. Finally, with the World Economic Forum recently ranking it the soundest in the world, the boys of Bay Street have become the envy of the global financial system.

It's easy to understand why. After witnessing the fallout from what happens when the world's largest banks leverage their assets 30-, 40-, or 70-1, some policymakers are positively drooling at Canada's cautious reserve requirements. And if it weren't enough that their levels of market capitalization now rival their major American counterparts, some of these cheeky Canuck banks are still making profit! In a recession!

So why have Canadian banks so far remained (relatively) insulated? From the NYT article:

The five major chartered banks, the few regional banks and handful of large insurance companies are all regulated by the federal government. Canadian banks are relatively constrained in the amounts they can lend. Canadian banks are required to have a bigger cushion to absorb losses than American banks. In addition, Canadian government regulations protect the domestic banks by limiting foreign competition. They also keep banks broadly owned by public shareholders....

The... horror. I think Italy is the only other major industrialized country with such heavy protective measures over its financial community - a factor which also seems to have insulated them from the crisis somewhat. But it's important not to overstate things. The op-ed continues:

Canadian banks are known to be risk-averse, and this has served them well. While their American counterparts were loading up their books with risky mortgages, Canadian banks maintained their lending requirements, largely avoiding subprime mortgages.... The big five Canadian banks... [have] survived the recent turmoil relatively unscathed.

I think those points deserve a few qualifications. First, I don't think the full impact of the US economic collapse has filtered across the border yet: several of Canada's top 5 expanded their operations into the US and so remain exposed to the fallout. Secondly, anecdotal evidence suggests that some of the banks were decidedly less cautious when it came to investing in the subprime market - and their clients are feeling the pain. Finally, it's not clear where future profits are going to come from given the nasty global environment - there are worrying signs already.

So maybe this model has a few blemishes after all. It's also worth noting that many banking execs had been lobbying very hard for Canada to alter its regulatory structure to allow its domestic banks to compete with their international rivals. Their relative failure to achieve this has proved to be their saving grace. But before the Europeans and Americans rush headlong into imposing Canadian-style banking regulations, they should take a good hard look at the social, political and institutional reasons for why those lobbying efforts had limited success - it wont be easy to re-create that environment at home.

But one thing does seem clear: Canada's financial regulators have the eyes of the world upon them. It will be interesting to see how they choose to deal with the new-found attention.

(photos: Mike Manalang's & Mister V's photostream)

Too lazy to string together a coherent argument, I instead provide links for your reading pleasure.

I'm making a concerted effort to read both interventionist and classical liberal types when it comes to economics with the hopes of cutting down on bias. As a Canadian, it's much easier to come across strong leftish sentiments, but it's reassuring to see that both sides get equally worked up. Check out the comments on Alex Tabarrok's summary of Obama's speech at GMU. I, for one, am hoping Alex is right.

Canada has no coherent government. "Essentially we are arguing that Canada has become a more genteel Somalia." Spicy!

The November stats are in. Consumer spending in America was way down, but volume of consumption was up. Wait, what?

A new blog over at Science has been launched with Darwin's Origin of Species as inspiration. On a related note, Dr. Boli has made a scientific discovery.

(I'm nitpicking here, but hopefully the content of Origins will be better than its grammar. The serial comma is running rampant in the welcome:

As part of its celebration of these two anniversaries, Science will be blogging, with Darwin as our inspiration. On this site, our writers and editors, as well as guest researchers and blog readers, will share their thoughts, not just about the origin of species but also about key nodes throughout the evolution of life, just as Darwin did.

I enjoy a comma as much as the next guy, but that's painful.)

The recent kerfuffle in Canadian politics managed to draw the attention of international spectators just long enough for some awkward questions to be raised about the nature of democracy in some of the United Kingdom's former colonies. Who exactly is the head of state in these places? What is their role? What does it mean to "prorogue" parliament? Is Stephen Harper's hair made of plastic?

Question no further, readers. All is explained through these links:

The Daily Show tackles the tough questions here (or here for Canadian readers).

I also enjoyed Dr. Boli's answer.

-John Thain wants his 2008 bonus, reportedly $10m. Two ways to look at this: 1) his social and political thermometers are broken, or 2) he deserves it. Despite all of his misleading statements on the health of Merrill Lynch and role in its eventual acquisition by Bank of America, he did secure the sale of the firm at $28 a share. Remember what Bear went for? My take: I recognize point 2, but agree with point 1. He's insane for asking, and his compensation committee would be crazier to approve. UPDATE: Apparently, someone told him this whole bonus demand was a bad idea, because he no longer wants it.

-The FT has an interesting article on today's elections in Quebec. The economy trumps sovereignty, a good sign for Liberals.

-The Pulitzer Prizes have expanded to cover online only publications. IPE Journal submits itself for consideration.

-Petroleum Intelligence Weekly has released its influential annual rankings of the world's top oil companies. The report highlights the increasingly marginalized position of the traditional private oil majors, and growing global market dominance of majority state-owned companies. This trend towards nationalization and state control of increasingly scarce resources has a number of powerful implications.

Politique
-US President-elect Barack Obama unveils details of his "21st century New Deal". The Economic Recovery Plan is preliminarily based on 5 pillars: energy, roads and bridges, schools, broadband, and electronic medical records. Many, including prominent members of his own party, are becoming increasingly frustrated with his "there is only one president at a time" line, as the sitting President appears to have checked out while Rome burns.
-The terrorist attacks on Mumbai end, the Indian investigation expands, and at least 29 people die from a car bomb in the Pakistani city of Peshwara. Blame for the attacks has focused on Pakistan-based Lashkar-e-Taiba (the likely perpetrators), the Indian government (early warnings, poor response, failure to hold Pakistan accountable), and the Pakistani regime (failure/inability to address sources of terrorism and militancy within its borders).
-A deliciously intriguing affair in the British House of Commons has ignited a fierce debate over Parliamentary independence, opposition politics, and police powers. Meanwhile, Canada has its own legislative controversy to deal with (find Dave's take here).

Economia
-The US learned it has been in recession since December 2007 (something everyone but this guy has been well aware of) and lost 533,000 jobs in November, the largest jobs decline in 34 years.
-Angela Merkel grew increasingly isolated in Europe as French President Sarkozy unveiled a €26bn stimulus package. UK Prime Minister Brown and Sarkozy will meet in London on Monday to renew their call for a coordinated European stimulus.
-An historic week in European central banking: BoE cuts 100 basis points to 2.0% (lowest level since 1951), ECB goes with 75 basis points to 2.5% (its largest single cut ever), and Sweden slashes a record 175 basis points to 2.0%.

The Rest
-In the Prem: Arsenal continue form following famous win at Stamford Bridge, Liverpool stay top, and ManU and Spurs on track for Carling Cup final. In Europe: Cristiano Ronaldo wins Ballon d'Or, reveals he was "an inch away" from being a Gunner in 2003.
-This week in Japanese innovation: omelets with the Motoman SDA10.
-"Experienced bandits" steal €85mn in luxury jewels from Harry Winston store in Paris. According to Reuters, the heist occurred almost a year to the day of a similar $16mn robbery at the store.

• "Record contraction in US services sector: Private sector sheds most jobs in six years"
• "Record number of companies at risk of default"
  
• "More grim data pushes Wall Street lower: job cuts worse than expected"
• "Markets braced for big rate cut: Bad economic data continue to flow from leading economies"
• "Blackberry maker warns on slower growth"
• "Commodities prices at six-year lows"

Not exactly cheerful news. And yet it is in precisely these grim economic times that the politicians of one of the best-performing rich countries have decided to instigate a political crisis. All by themselves. Non-residents will be forgiven for not having heard about Canada's most recent political circus - you will also be forgiven for continuing in that blissful ignorance.

As I alluded to, Canada's economy has so far held up extremely well compared to the rest of the G7. However, the knock-on effect of recessions in the economies of Canada's biggest trading partners is likely only to be delayed and dulled, not avoided. Given that, Prime Minister Harper's decision last Thursday to use his "economic update" in parliament as an excuse to kneecap both opposition parties and public servants was pretty shameful. See Paul Wells for more on that score.

Equally shameful was the response of the various parties that make up the parliamentary opposition. Within weeks of decisively losing a federal election, the three opposition parties have decided, in their collective wisdom, that rather than blocking the PM's maneuver with their combined majority or even (horrors!) suggesting a viable policy alternative, they will form a coalition and take over the government.

The battle lines have been drawn and both sides are working ferociously to brand the other as unpatriotic, irresponsible, power-hungry nutters. Both sides are winning; meanwhile, Canadians everywhere are the losers.

Let me quickly address some of the main issues. First of all, there is nothing in principle wrong with the idea of a separatist party engaging in a government coalition. Moreover, since both sides have relied on said "separatist" party to support their agenda, there is equal parts hypocrisy on all sides. As far as the complaint by the opposition that the economic update did not include appropriate measures for fiscal stimulus... I got yer fiscal stimulus: right here!

I will finish with an open letter to Canada's legislators:

Dear Conservative, Liberal, New Democratic and Bloc Parties,

Grow up.