Canada and the United States: Different roots, different routes to financial sector regulation

This paper explores the lessons to be learned from why the neighbouring banking systems of Canada and the United States, that share numerous commonalities, fared so differently during two major financial crises. The explanations are deeply rooted in different tolerances for industry concentration and state involvement, and the divergent routes of the development of their financial systems, founding institutions, on-going governance and regulation, and competitive structures. Canada's success during the more recent 2007–09 financial crisis is attributed to more effective regulation and conservative banking practices, including (self-) imposed stricter limits on bank leverage, much stricter limits on unconventional mortgages, and less reliance on the use of more ‘creative’ investment types (e.g. subprime lending) and structured products.