Why did the Canadian banks fare so much better than their American cousins?
1. There was no Community Reinvestment Act to compel loans to crappy borrowers.
2. There is no Fannie Mae or Freddie Mac pushing “affordable housing by guaranteeing high risk loans.
3. Mortgage interest is not tax deductable.
4. Unless you put down 20% the mortgage holder must purchase credit insurance.
5. In Canada a mortgage holder can not just walk away from a bad loan. He will be held accountable and the bank can attach other assets.
In short the Federal government, including tax policy, is far less involved in the mortgage business, and individuals are held far more accountable. Yet the home ownership rate is the same as in the U.S.
While many blame the deregulation in the U.S., Canada dumped its version of Glass-Steagall over 20 years ago.
Canadian institutions were more shy of risk taking. They got rid of problem loans five years ago. Subprime was only 7% of mortgages vs 20% here.
Canada did not escape the financial meltdown. The Canadian government bought $55 billion dollars of insured loans and helped system liquidity through intervention, and the GDP has fallen. But Canadian banks avoided the complexity and risk that our American Banks embraced.
It is not coincidental that both their private and public sector behaved more prudently.