U.s. Sneezes Canada Will Catch A Cold

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With Canada and the United States being neighbours, the common saying goes that “if the U.S. sneezes Canada will catch a cold”. When it came to the housing bubble both countries experienced marginally different outcomes. Canada was able to shield itself from the effects of the Financial Crisis due to its regulatory system, corporate governance and strong banking systems (Lynch, 2010). The Office of the Superintendent of Financial Institutions (OFSI) regulates the Canadian banks; the regulation is in accordance with the Bank Act of 1992 and is regularly updated to find ways to protect the banking system from falling (Lynch, 2010). The top six Canadian banks are tightly linked, and equipped to consolidate if one bank should fall (Lynch,…show more content…
The premiums charged are risk adjusted and could be paid upfront or as an annuity. As of June 2015, the premiums will go up for Canadian mortgages with down payments lower than ten percent. The use LMIs and other depository insurances such as CDIC are crucial to the understanding of how the Canadian banking system is resistant to economic downturns. The use of protocols and regulations allow financial institutions to reduce their risk and guarantee the repayment of their loans (Saunders & al, 2014).

U.S. Perspective

The banking system in the US deviates from Canada, the banks are regulated at the state level and therefore could never mimic the sophisticated banking structure of their neighbours (Saunders et al, 2014). There were many red flags early on that should have been questioned by the Federal Reserve. First of all, some of the worst practices in the housing market were in place and known to the public. Appraisers were overvaluing properties, banks were paying credit companies for the rating of their bonds and mortgage backed securitizes loosened their standards (Baker, 2008). This is the equivalence of taking the debt and moving it elsewhere with no worry of when and how the repayment would occur. The biggest red flag that was not addressed was the rapid
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