The Canadian Way of Banking

While 200 U.S. banks have failed since the start of the global recession in early 2008, Canada remains the only industrialized country in the world that has survived the last two years of financial and economic stress without a single bank failure. A major advantage is that, unlike the tripartite nonsense introduced into the UK by Gordon Brown, Canada has a single federal regulator (the Office of the Superintendent of Financial Institutions). Among the features of Canadian banking that give such stability is that fact that almost all Canadian mortgages are “full recourse” loans, meaning that the borrower remains fully responsible for the mortgage even in the case of foreclosure. If a bank in Canada forecloses on a home with negative equity, it can file a deficiency judgment against the borrower, which allows it to attach the borrower’s other assets and even take legal action to garnish the borrower’s future wages. The full recourse nature of Canadian mortgages results in much more responsible borrowing. The Canadian government provides public funding for low-income rental housing, rather than encouraging homeownership for low-income households. Thus Canada has avoided the misguided policies of the Carter and Clinton presidencies which turned good, low-income renters into bad homeowners. In fact there has been little of the politically motivated interference seen elsewhere which encouraged excessive lending to risky borrowers because of a political obsession with homeownership.

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