American Media recognize Canada as more fiscally sound. TD jumps in stature.
Re-Published from Realtorlink, our industry newsletter. REBGV Vancouver, BC. March 12, 2009
Weathering the economic storm – There is some good news
With the continuous bad news about the rampant global financial crisis, it’s easy for a good news story to get lost in the sea of negativity.
That’s what happened last month when two major publications – Newsweek and the New York Times, quietly reported on their back pages how Canada’s banking system and fiscal policies are helping it to weather the economic storm far better than other countries worldwide. We’re hoping this news makes it to the front page headlines here in Canada. It’s what we all need to hear more about.
Canada’s conservative banking system has proven resilient and “is finally getting its day in the sun,” according to the New York Times. Even President Barack Obama is an admirer, reportedly stating that Canada is “a pretty good manager of the financial system in the economy in ways we haven’t always been, here in the United States.”
In 2008, the World Economic Forum ranked Canada’s risk-averse banking system the soundest in the world. The U.S. banking system ranked 40th and Great Britain’s ranked 44th.
In Canada, we’re showing the rest of the world that smaller can be better. For real estate investors, this is a positive we want known.
Unlike other countries around the world, Canada’s five major chartered banks and our few regional banks have a significant amount of capital or equity in reserve to protect us. Canada's federal banking regulator, the Office of the Superintendent of Financial Institutions, requires banks to hold seven per cent of their capital in reserve. This is our insurance policy against any potential losses.
Last year, the Toronto Dominion Bank, according to Newsweek, ranked 15th-largest in North America. Now, it’s the fifth-largest. It hasn’t grown. Instead U.S. banks have seen their assets decline.
In the U.S. and Europe, since the mid-1990s, we’ve seen extensive deregulation of the financial industries. As a result Canadian banks are leveraged at 18 to 1, U.S. banks are leveraged at 26 to 1, and European banks are leveraged at 61 to 1, according to Newsweek.
Canada’s strong monetary policies help keep our financial institutions in check.
When it comes to our housing market, Canada does not have the same widespread sub-prime mortgage market problems and we don’t allow mortgage interest deductibility, a tax incentive which cost the U.S. government $100 billion last year alone. Both of these measures were introduced to boost the rate of home ownership, which now sits at 68 per cent in the U.S. In Canada our federal government offers no similar incentives, yet our rate of home ownership is 68.4 per cent.
Although we may think our government spends too much, Canada has had federal budget surpluses for the past 12 years. In the U.S., the government was running trillion dollar deficits, even before the current crisis.
What does this mean? Canada is in a recession, defined as two quarters of declining economic output. While the situation is expected to worsen in the short term, our common sense fiscal policies and our solvent banking system means that it won’t be as severe as in most other countries worldwide.
To read the articles, visit:
newsweek.com/id/183670
nytimes.com and in the search box type The Great Solvent North
----As always, I welcome the opportunity to discuss global, national and especially local economic news with my clients. Making informed decisions to help you achieve your goals and realize your dreams.
Downtown Vancouver Specialist. Blair Smith, 604-313-8732