2008 Financial Crisis Case Study

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5) Why was Canada able to avoid most of the repercussions of the 2008 Financial Crisis? Your answer should delve into the historical development of both systems. The 2008 Financial Crisis left the world in a deep recession and it took a long while for the economy to recover. The repercussion was unforeseen and has shocked the whole world. Fortunately, Canada was not as heavily impacted by the crisis compared to the United States. The main reason that Canada could avoid most of the repercussions was probably that while America was structuring a system to achieve maximum access and innovation, Canada was willing to sacrifice some of both in turn for more stability. Throughout history, the United States had always feared centralized monetary…show more content…
After the LDC (Less Developed country) crisis, Canadian banks suffered greatly and the nation faced the worse decline since the Great Depression. A Commission of Enquiry was created to investigate bank failures and regulation changes were recommended. This was when OSFI (Office of the Superintendent of Financial Institutions) was created because Canada realized that they should move past self-regulation. In addition, FISC (Financial Institutions Supervisory Committee) was also established to have greater oversight of the system. U.S. on the other side felt that they had a good recovery from the LDC crisis through restructuring of balance sheets and debts. Although they have agreed to international regulatory standards (Basel accords) with more sophisticated risk measurements, leading up to the 2008 financial crisis the U.S. was still financing mortgage and other debt with securitized instruments, which was a threat that regulators should have considered but he profit and incentives high enough to make market participants look the other way when it comes to proper lending practices and risk evaluation. Canadian banks and regulators were more conservative and limited the amount of positions they took in derivative markets. While Americans leaned toward short-term profits with little adjustment for risk, the Canadian struck a better balance…show more content…
After World War II, many nations were left with weak economy and financial instability. Offshore banking became a method to escape national regulation as many national regulators turned a blind eye on deposits in currencies other than their own. The offshore market became popular due to its ability to facilitate new finance innovations and keeping transaction costs low. Eurodollar market for example is a product of this trend. As offshore banking became competitive, the U.S. had to remove limits on national banking and the division between commercial and investment banking. Canada also benefitted from this new trend as it appeared to be very promising for international expansion. However, differing from the United States, Canadian Banking Act was in place to protect domestic banks from new foreign entrants and also effectively manage risk. With the increase of international investment, not only does funding needs were satisfied but new business information systems were also developed due to the increased need for more centralization and a variety of services. New regulations such as The International Banking Act of 1978 was formed to level the playing field between foreign and American banks by requiring mutuality from any country whose banks are seeking permission to enter the United States. The Gramm-Leach-Bliley Act also removed barrier for commercial banks, investment banks,
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