Capitalism and Canada

Fareed Zakaria has a new article in Newsweek that looks at Canadian banks and how they are faring compared to their American counterparts:

Canada has done more than survive this financial crisis. The country is positively thriving in it. Canadian banks are well capitalized and poised to take advantage of opportunities that American and European banks cannot seize. The Toronto Dominion Bank, for example, was the 15th-largest bank in North America one year ago. Now it is the fifth-largest. It hasn't grown in size; the others have all shrunk.

So what accounts for the genius of the Canadians? Common sense. Over the past 15 years, as the United States and Europe loosened regulations on their financial industries, the Canadians refused to follow suit, seeing the old rules as useful shock absorbers. Canadian banks are typically leveraged at 18 to 1—compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1. Partly this reflects Canada's more risk-averse business culture, but it is also a product of old-fashioned rules on banking.

I especially like the article because of the implicit point that this economic crisis is not a crisis of capitalism itself. Rather, as the article makes clear the American financial crisis and the collapsed housing bubble are far more directly related to the erosion of the financial regulatory system.

From what I can gather from reading and talking with my father, it sounds like Australian banks are also generally doing okay, again based on better regulation and substantially lower leverage ratios.