Canadian banking has always had a reputation of being “stodgy” and overly conservative, however this has led the country’s financials to remain relatively unscathed following the credit crisis, says Ontario’s former finance minister. In an exclusive interview with Euromoney | Sibos Insider, Janet Ecker, former Ontario finance minister and now president of the Toronto Financial Services Alliance (TFSA), says that other regions can learn from Canada’s financial services industry in how to improve their risk management practices, as well as how to tackle the raft of regulatory changes sweeping across the US and Europe.
“I think Canada has built a well deserved reputation for risk management within the financial services sector,” says Ecker. “However, while Canada’s banking sector has had the reputation for being ultra conservative and maybe ‘boring’ in terms of exotic products, this has meant that Canada dodged the bullet in the first round of the economic meltdown.”
According to the World Economic Forum (WEF) Canada has the world’s soundest banking system, closely followed by Sweden, and Luxembourg, for the past four years.
The World Economic Forum's Global Competitiveness Report based its findings on opinions of executives, and handed banks a score between 1.0 (insolvent and possibly requiring a government bailout) and 7.0 (healthy, with sound balance sheets).
“There is a lot to learn from Canada in terms of the banking culture,” says Ecker. “Like our current finance minister said – stodgy is the new sexy. While the Canadian banking culture is considered stodgy or overly conservative, this means there is an engrained culture to ask the right questions and not participate in overly exotic trading, such as asset backed securities which led to the credit crisis. Another element that non-Canadian financials can learn from Canada is the working relationship between the regulators and the financials.”
Ecker believes that capital raising will also not be an issue for Canadian financials as it already has these type of levels in place.
“While most of the world has become concerned that capital raising and capital levels for banks that were enforced by regulators will have a major impact on profits and operations, I can safely say that Canadian banks will not and do not have any concerns over this,” says Ecker. “While banks round the world look at how close they can get to the line that they need to provide in terms of capital requirements, Canadian financials have had internal capital raising levels as well, so when new regulation was put in place, it was already ingrained in the banking culture.”
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