Policies in Canada to Enhance Economics

For some time, during and after Canada’s financial crisis in 2008, it was considered fashionable to refer to the country as a regulatory and fiscal prudence paragon. In the years preceding the crisis, the government in Canada involved in budget surpluses. This enabled the country to grow the economy, while avoiding huge debt loads.Advertising We will write a custom essay sample on Policies in Canada to Enhance Economics specifically for you for only $16.05 $11/page Learn More Extremely high debt loads are experienced in Spain and Greece. Moreover, the banking system in Canada underwent critical capital requirements. It is also worth noting that they were more averse to risks, as opposed to the counterparts in Europe and America (Von Hagen, Schuknecht Wolswijk, 2011). Maybe the most vital aspect is that Canada did not engage in the kind of real estate experiences as is the case in Great Britain and the United States. This is as a result of the str ingent lending standards. In addition, there is no mortgage interest deductibility. The financial crisis experienced worldwide paralyses financial institutions in the developed countries. In addition, it led to bailouts in countries, as well as banks. It is worth noting that the financial sector in Canada was not greatly affected by the financial crisis, even in the absence of taxpayer- financed bailouts. Moreover, the banking sector in Canada remained extremely well capitalized and stable. There are several measures that Canada took to safeguard the stability in its financial system (Reinhart Rogoff, 2008). It is worth mentioning that slightly before the crisis, the bank funding structure was extremely favourable. This is because banks depended more on depository as opposed to wholesale funding. The second strategy is that Canada possesses extremely restrictive capital sufficiency regulatory measures globally. This is in regard to the allowed capital deductions, risk- weighting, a s well as permissible regulatory capital definitions. Furthermore, the banking system’s structure in Canada is attributable for making the sector more solid. In the country, tight measures as well as heavy regulation upon entry resulted to extremely concentrated banking systems. These were dominated by five of the biggest competitors.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Whereas this system is responsible for making the sector slightly less competitive, the sector became more regulatory. This, consequently, reduced the banking sector’s shadow size. The dilemma concerning regulators is a trade- off, which supervisors regularly face as far as stability and competitiveness are concerned. In my opinion, the performance of the economy prior to the crisis, the 2-4 % yearly GDP growth rate in 1999- 2008, as well as the banking sector while the crisis was on going indicate that the country has a perfect balance (Afonso, Kovner Schoar, 2011). As mentioned earlier, the funding structure in Canada was extremely favourable. This is as a result of the Canadian banks reliance on depository as opposed to wholesale funding. Huang and Ratnovski (2009) argue that in banks where funding was dependent on deposits, there was great resilience during the financial crisis. This was the opposite for banks that had a greater reliance on wholesale funding. The liquidity ratios and capitalization were a source of strength for the banks in Canada. This is irrespective of the fact that they were not more in OECD jurisdiction. It is worth noting with keen concern that the exposure Canada to the mortgage assets in the United States was minimal. According to Erkens, Hung and Matos (2012), this is in comparison to the other countries in OECD. In addition, domestic mortgage lending was considered keenly in US. The regulatory framework gave limits to the risks that the banking sector undertook. Traditionally, the nation possesses stringent capital sufficiency regulatory measures as opposed to other more developed economies. This is even before the Basel Accord. Studies indicate that Canada possessed the tightest supervisory capital strategies prior to the financial crisis. 15% of capital is as a result of attractive financial instruments. On the other hand, seventy five percent results from common equity.Advertising We will write a custom essay sample on Policies in Canada to Enhance Economics specifically for you for only $16.05 $11/page Learn More Moreover, the regulatory framework acts as a restriction for maximum multiple assets. These regulations were responsible for preventing the Canadian banks from assets that eventually turned out to be toxic. Another idea is that the regulations were responsible for the great capital requirements, which were past the requirements stated by Basel Accords. The banking system arrangeme nt is conventionally attributable to the stability experienced in the sector. The stringent precincts and heavy protocols upon entry, resulted to a banking system, which was highly focused. While the sector was rendered less competitive, regulating the sector was made easier. It is the reason why the Canadian system is attributed to great equity returns. The financial system in Canada offers several insights in regard to the creation of firm banking system (Financial Post, 2012). This refer to banks that are well- capitalized and have little leverage, transparency in the systems, risks have links, reward, performance, and an acceptable culture. The Canadian banks were extremely successful since they never engaged in sophisticated financial trades, compared to the counterparts in the United States. Consequently, the financial system was capable of withstanding the turmoil and avoiding bailouts. According to Mark Carney, â€Å"Wholesale reforms of regulation, changes to policy and ad justment of private behaviour are required. We should all approach these tasks with a measure of humility.† References Afonso, G., Kovner, A., Schoar, A. (2011). Stressed, not frozen: The federal funds market in the financial crisis, The Journal of Finance, 66(4), 1109-1139. Erkens, D. H., Hung, M., Matos, P. (2012). Corporate governance in the 2007–2008 financial crisis: Evidence from financial institutions worldwide, Journal of Corporate Finance, 18(2), 389-411. Financial Post. (2012). Mark Carney’s Most Memorable Quotes. Web.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Reinhart, C. M., Rogoff, K. S. (2008). Is the 2007 US sub-prime financial crisis so different? An international historical comparison (No. w13761). National Bureau of Economic Research, 21(2), 1- 92. Von Hagen, J., Schuknecht, L., Wolswijk, G. (2011). Government bond risk premiums in the EU revisited: The Impact of the financial crisis. European Journal of Political Economy, 27(1), 36-43. This essay on Policies in Canada to Enhance Economics was written and submitted by user GitHoskins to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.