Canada's banking system kept high and dry by strict regulation: Flaherty
1 hour ago
TORONTO — High banking standards have kept Canada's financial institutions afloat and out of the kind of trouble that has sunk many of their international peers, Finance Minister Jim Flaherty said Wednesday.
Flaherty, who will meet Friday in Washington with finance ministers from industrial countries to co-ordinate efforts to deal with the global economic crisis, said Canadian banks have been bolstered by strict government monitoring of their capital.
"We've had a couple of financial institutions in Canada that ran the risk of falling outside the capitalization requirements," he said during a news conference on Wednesday morning.
"We required them... to maintain the appropriate capital requirements and raise capital as necessary, which was done months ago."
While Flaherty said government regulation has helped make Canada's banking industry more secure than financial sectors in the United States and many other countries, Canada has also benefited from a strong housing market and more conservative lending practices.
So-called sub-prime mortgages to risky borrowers, which were at the heart of the U.S. financial collapse, were only a tiny part of the Canadian mortgage industry and are non-existent today. Meanwhile, Canadian borrowers must put down at least five per cent of the cost of a home and the payback period on federally insured mortgages has been reduced to 35 years from 40 years, lowering the risk of defaults.
Economies around the world have been battered by a banking crisis, a crumbling housing market and a credit crunch that has dried up borrowing.
Earlier today, the Bank of Canada and other central banks cut interest rates by half a percentage point in a co-ordinated effort to stimulate lending and economic growth.
Flaherty said an International Monetary Fund report released Tuesday shows Canada will lead G-7 economies in 2009, with growth of 1.2 per cent, though overall global growth will slow down.
Meanwhile, the U.S. is forecast to grow only 0.1 per cent and Europe 0.2 per cent.
The finance minister said Canada is in a strong position to deal with the global crisis, with a strong banking system, a stable housing market and a federal budget surplus.
"Other countries have been increasing their deposit standards, but they're still for the most part below the high Canadian standard," he said.
Flaherty added that the government is prepared to do "whatever we have to do" to protect Canada's financial system, though he declined to outline any plans.
"I'm not going to talk about what they might be," he responded when pressed for more detail.
The minister also said he believes the Bank of Canada has done a sufficient job so far in providing money - or liquidity - to the markets.
Flaherty said he wouldn't advise Canada's banking system to decide whether to pass Wednesday's interest rate cut onto consumers.
"I don't give the banks guidance on what they should do or shouldn't do," he said.
"They respond to the steps taken by the Bank of Canada as they see fit. We have a competitive banking system." |
