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

26 Pages Posted: 9 Jan 2015

See all articles by Michael D. Bordo

Michael D. Bordo

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

Hugh Rockoff

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

Angela Redish

University of British Columbia (UBC) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: February 2015

Abstract

The financial crisis of 2008 engulfed the banking system of the US and many large European countries. Canada was a notable exception. In this article 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 US in our view reflected the original institutional foundations laid in place in the early nineteenth 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 US 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 2007–8 was not contained.

Suggested Citation

Bordo, Michael D. and Rockoff, Hugh T. and Redish, Angela, Why Didn't Canada Have a Banking Crisis in 2008 (or in 1930, or 1907, or …)? (February 2015). The Economic History Review, Vol. 68, Issue 1, pp. 218-243, 2015. Available at SSRN: https://ssrn.com/abstract=2547255 or http://dx.doi.org/10.1111/1468-0289.665

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

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)

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Cambridge, MA 02138
United States

Angela Redish

University of British Columbia (UBC) - Department of Economics ( email )

997-1873 East Mall
Vancouver, BC V6T 1Z1
Canada
604-822-2748 (Phone)
604-822-5915 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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