Why Didn't Canada Have a Banking Crisis in 2008 (or in 1930, or 1907, or ...)?

41 Pages Posted: 29 Aug 2011 Last revised: 1 Sep 2011

See all articles by Michael D. Bordo

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Angela Redish

University of British Columbia (UBC)

Hugh Rockoff

Newark College of Arts & Sciences - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 2011

Abstract

The financial crisis of 2008 engulfed the banking system of the United States and many large European countries. Canada was a notable exception. In this paper we argue that the structure of financial systems is path dependent. The relative stability of the Canadian banks in the recent crisis compared to the United States in our view reflected the original institutional foundations laid in place in the early 19th century in the two countries. The Canadian concentrated banking system that had evolved by the end of the twentieth century had absorbed the key sources of systemic risk -- the mortgage market and investment banking -- and was tightly regulated by one overarching regulator. In contrast the relatively weak, fragmented, and crisis prone U.S. banking system that had evolved since the early nineteenth century, led to the rise of securities markets, investment banks and money market mutual funds (the shadow banking system) combined with multiple competing regulatory authorities. The consequence was that the systemic risk that led to the crisis of 2007-2008 was not contained.

Suggested Citation

Bordo, Michael D. and Redish, Angela and Rockoff, Hugh T., Why Didn't Canada Have a Banking Crisis in 2008 (or in 1930, or 1907, or ...)? (August 2011). NBER Working Paper No. w17312. Available at SSRN: https://ssrn.com/abstract=1918642

Michael D. Bordo (Contact Author)

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Angela Redish

University of British Columbia (UBC) ( email )

Hugh T. Rockoff

Newark College of Arts & Sciences - Department of Economics ( email )

360 ML King Jr. Blvd.
Newark, NJ 07102
United States
732-932-7857 (Phone)
732-932-7416 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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