http://open.salon.com/blog/richard_rider/2010/03/22/12000_us_bank_failures_vs_two_canadian_banks
12,000 US bank failures vs. TWO Canadian banks
Canada is no free market country. But according to the Heritage Foundation’s 2010 ranking of countries’ relative “Economic Freedom,” Canada (national health care and all) is the 7th most free country in the world. The U.S. has dropped to 8th. But at least we still beat the pants off North Korea!
http://www.heritage.org/index/Ranking.aspx
With the implementation of our country’s new, full, “free” national health care, we should drop several more notches in coming years’ comparisons.
But I digress.
One financial area where Canada excels is the way they have handled their home mortgage business. The widespread banking disaster we see in the U.S. is nonexistent there. I’m told that Australia has the same banking system as Canada, and also has little problem with real estate meltdowns.
Here’s some quick factoids from economist Mark Perry’s excellent “Carpe Diem” website blog:
http://mjperry.blogspot.com/2010/02/bank-failures-12000-in-us-vs-2-in.html
Bank Failures: 12,000 in the U.S. vs. 2 in Canada
Number of bank failures during the 1930s
United States: 9,000
Canada: 0
Number of Bank Failures during S&L crisis (1980s-90s)
United States: Almost 3,000
Canada: 2
Number of Bank Failures during the Great Recession (2007-2010)
United States: 196
Canada: 0
Delinquency Rate for Home Mortgages in December 2009
United States: 9.47%
Canada: 0.45%
Return on Equity for the Banking Industry in 2008
United States: -15% (approx.)
Canada: +10% (approx.)
Home Ownership Rate
United States: 67.2%
Canada: 69%
What explains these significant differences between the U.S. and Canada? What is it about the Canadian banking system that allowed it to survive the recent worldwide slowdown without a single bank failure? What can the United States learn from Canada about sound banking? Find out here at my America.com article “Due North: Canada’s Marvelous Mortgage and Banking System.”
RIDER NOTE: There are a number of factors contributing to Canada’s success in avoiding the bank meltdown so common in the U.S. and elsewhere. It’s worth reading Perry’s article above.
Two items stand out for me:
1. The Canadian real estate loans are RECOURSE loans (like personal loans in the U.S.) — you can’t walk away from the loan obligation through default. This is tremendous incentive to borrow prudently.
2. The real estate loans are not deductible — an incentive to borrow less and pay such loans off sooner.
Bottom line: The U.S. home mortgage default rate is TWENTY-ONE TIMES HIGHER than the Canadian rate, while Canada’s percentage of home ownership is a bit higher than the U.S.
BTW, let’s not wax too euphoric about the Canadian banking system — they have received heavy national government bailout subsidies. But their problems are minor compared to our mess in the good ol’ US of A.
=====================
Richard Rider, Chairman
San Diego Tax Fighters
Phone: 858-530-3027
Email: RRider@san.rr.com
Blog: www.RiderBlog.NotLong.com
=====================