If we are to avoid another crisis and melt-down of the banking/financial sector such as we had in 2008, then we must change the rules of the game.  There must be institutional change.  Canada avoided much of the financial crisis.  Why?  Well, part of it is regulation (something Canadians are more comfortable with than Americans) and part of it is just plain culture.  For more see:

Paul Krugman via Op-Ed Columnist – Good and Boring – NYTimes.com.

In times of crisis, good news is no news. Iceland’s meltdown made headlines; the remarkable stability of Canada’s banks, not so much.

Yet as the world’s attention shifts from financial rescue to financial reform, the quiet success stories deserve at least as much attention as the spectacular failures. We need to learn from those countries that evidently did it right. And leading that list is our neighbor to the north. Right now, Canada is a very important role model.

Or see Christia Freeland in the Financial Times:

This tendency to react to the mere mention of Canada with either yawns or guffaws may be why, as the world struggles to figure out what went wrong in 2007 and 2008, not much international attention is being devoted to figuring out what went right in Canada. Canada is the only G7 country to survive the financial crisis without a state bail-out for its financial sector. Two of the world’s 15 most highly valued financial institutions – a list dominated by China – are Canadian and a recent World Economic Forum report rated the Canadian banking system the world’s soundest. Even Barack Obama, on the eve of a visit last year to Ottawa, the Canadian ­capital, admitted: “In the midst of the enormous economic crisis, I think Canada has shown itself to be a pretty good manager of the financial system and the economy in ways that we haven’t always been.”

One of the most important policy debates today – particularly in countries hardest hit by the crash, such as the US and UK – is what caused the crisis and what should be done to prevent a repetition. Inevitably, the discussion is hypothetical: even if we could agree on exactly what went wrong, no one can prove that any recommended policy changes would have averted the meltdown. That’s where Canada comes in. It is a real-world, real-time example of a banking system in a medium-sized, advanced capitalist economy that worked. Understanding why the Canadian system survived could be a key to making the rest of the west equally robust.

The first argument you are likely to hear when you start asking what made Canada different is cultural. Depending on your degree of fondness for Canucks, this thesis comes down to the notion that Canadians are either too nice or too dull to indulge in the no-holds-barred, plundering capitalism that created such a spectacular boom, and eventual bust, in more aggressive societies. A senior official in Ottawa likes to say that Canadian bankers are “boring, but in a good way. They are more interested in balance sheets than in high society. They don’t go to the opera.”

Canadian facts and figures

• 6 big banks, approximately 73 banking institutions in total

• The big banks are all universal – offering retail, commercial and investment banking services. Some boutique investment and commercial banks exist but they are relatively small

• Banks have minimal off-balance-sheet holdings

• Banks’ return on equity generally 13% to 20%

• Home ownership rate: 68.4% of the population

• Subprime less than 5% of the mortgage market

• Relatively low penetration of derivatives and securitisation
(27% of mortgages repackaged and sold as bonds)

• Mortgage default rate less than 1%

Source: McKinsey
Dates: 2008 & 2009, except Canadian home ownership figures, which come from the 2006 census.

Canadian facts and figures

• 6 big banks, approximately 73 banking institutions in total

• The big banks are all universal – offering retail, commercial and investment banking services. Some boutique investment and commercial banks exist but they are relatively small

• Banks have minimal off-balance-sheet holdings

• Banks’ return on equity generally 13% to 20%

• Home ownership rate: 68.4% of the population

• Subprime less than 5% of the mortgage market

• Relatively low penetration of derivatives and securitisation
(27% of mortgages repackaged and sold as bonds)

• Mortgage default rate less than 1%

Source: McKinsey
Dates: 2008 & 2009, except Canadian home ownership figures, which come from the 2006 census.