Canada’s economic growth has been relatively concrete and better than in most other OECD countries since the start of the recession in 2007. Overall, no Canadian bank was acquired, nationalized, required a government recapitalization or declared bankrupt and there were no government bailouts of insolvent companies during this period. Canada was the only G-7 country able to escape a financial crisis, and its downturn was more moderate than Europe countries and U.S.. Canadian financial institutions are inclined to be more rigorous monitored, with larger capital requirements, greater restrictions and fewer off balance sheet activities. Also, the recent stress tests conducted by International Monetary Fund (IMF) show the resilience of Canada's economy and its major banks for contagion risks. A number of factors played a role in this positive outcome. According to recent economic review, Canada has an economy characterized by some strengths: responsible fiscal policy, strong and resilient financial system, sound monetary policy and institutions that produce reforms to encourage growth.

Canada’s Financial System: Well Managed and Well Regulated

(see also the Canada’s financial system among federal regulation and economic crisis. Strengths and vulnerabilities)

During the global economic crisis of 2007-09, the financial systems of some countries responded better than others. The crisis crippled or brought down financial institutions and forced bailouts of banks as well as countries. In contrast, Canada’s financial system has been relatively less affected by the global crisis than those of other industrialized countries. In fact, the performance of the Canadian banking system during this period was relatively strong. For the last six years, the World Economic Forum has ranked Canada first among more than 140 countries for banking stability because it has almost totally avoided systemic troubles. At the same time, in 2014, according to the Global Financial Magazine ranking, the first four positions in the ranking of the strongest banks, there are four Canadians banks.

Moreover, the regulatory framework for Canada’s financial sector is more prudent compared to U.S., for example, Canadian banks were less active in the subprime lending and securitization activities that are at the trigger of the existing financial crisis.

Actually, the Canadian banking system is characterized by five key elements:

- Supervision is focused and proactive

- Efforts to promote financial stability are coordinated

- Clear and credible recovery and resolution mechanisms

- Bank capital regulation is prudent

- Entire financial framework is regularly reviewed and updated

In particular, in Canada there is financial stability strengthened for adequate informal cooperation between federal and provincial authorities, about level of supervision and regulation. Supervisory responsibility for the financial sector in Canada is divided among the federal government, among the provincial governments, and among a group of agencies within the federal government. The Canada's approach is the shared responsibility among the Department of Finance and other federal financial regulatory authorities, including the Bank of Canada, the Office of the Superintendent of Financial Institutions (OSFI) and the Canada Deposit Insurance Corporation (CDIC). Ultimately, it is the Minister of Finance who is responsible for the sound stewardship of the financial system. Moreover, heavy regulation and tight restrictions on entry led to a highly concentrated banking system dominated by only five competitors (Royal Bank of Canada, TD Canada Trust, Bank of Nova Scotia, Bank of Montreal, and Canadian Imperial Bank). While this system made the sector less competitive, it also made the sector easier to regulate. Monitoring has been made more feasible by the fact that its system includes only a small number of institutions. The results are that Canada’s compliance with international standards for regulation and supervision of banks and insurers is strong.

Another important factor is that, overall, risk-management practices at the major Canadian banks remained prudent during the lead-up to the global financial crisis, and likely helped them to weather the subsequent effects better than many other banks. In Canada, strong risk-management practices are recognized to a traditionally conservative business culture. In fact, the IMF results indicate that Canada’s banks had a less-aggressive business model, a more-robust funding model, and stronger balance-sheet liquidity. The IMF’s 2014 Financial Sector Assessment Programme (FSAP) review explained that Canada’s major financial institutions were sufficiently well capitalized to withstand the credit, liquidity and contagion issues of a quick shock.

The reason for the construction of strong regulatory framework was financial system stress that has occurred in the past, including the failure of some small Canadian banks and upheaval in the domestic housing and commercial real estate markets in the 1980s and again in the early 1990s. These cases show that the Canadian financial system is not immune to issues, and they contributed to an improved framework governing behaviour in Canada’s financial system, including adoption of better risk-management practices for banks. These events encouraged the reaction of Canadian authorities in order to create a situation of prudent risk-taking and improved crisis response. Put differently, Canadian banks strong performance during the 2007…09 financial crisis is seen as having benefited from the lessons from past periods of financial system stress in Canada, and the subsequent changes put in place, in terms of regulation, supervision and banks’ own risk-management practices, following these events.

Another positive effect was the clear and credible recovery and resolution mechanisms through the establishment of clear mandates, incentives and communication structures for all of the domestic government institutions that operate to financial stability. For example, Canada’s bank regulations and charters are revised every five years, an attempt to help regulation adapt to innovation and new risks.

Canada’s Actions for Real Economy

Canada was generally better situated than many other countries to weather the financial crisis and the global economic recession, in particular among G-7 countries as showed in Table 1.


Table 1: Canada was the first G-7 country to recover losses


Source: Statistics Canada, U.S. Bureau of Economic Analysis, U.K. Office for National Statistics, Eurostat, Cabinet Office of Japan, and Bank of Canada calculations


This resilience is attributed to several factors. First, Canada positioned itself well also before the global recession thanks a conservative macroeconomic policy that reduced the federal government’s debt relative to GDP. Secondly, the banks performed better because Canadian authorities operated in advance in addressing the potential economic shock. In this scenario, it is evident the importance played by institutions and policy makers which have played a key role through the adoption of specific reforms in the real economy sectors.

Overall, Canada’s economic reforms since the 1980s included free trade, privatization, spending cuts, sound money, large corporate tax cuts, fiscal reforms, balanced federal budgets and decentralizing power to decrease the central government influence (the provinces compete with each other over fiscal and economic matters, and they have wide latitude to pursue different policies).

In recent years, the Canadian government launched a series of measures which, through greater simplification and transparency, have stimulated the growth of investment. For example, some actions focused on reducing barriers to foreign investment in the telecommunications field and on opportunity for entrepreneurs to take benefit of a very short time for the authorization of large economic projects. In particular, the government has invested heavily in sectors relevant to the Canadian economy such as agriculture and mining activities but also to reduce the tax rates for companies to stimulate growth.

Since October 1, 2012, the “Red Tape Reduction Action Plan” sets out what the Government is doing to cut burocracy so entrepreneurs can focus on business. The Action Plan addresses to businesses to limit regulatory creep and make the organization more transparent and accountable. These structural reforms regarding three main sectors action: reducing the administrative burden on business, making it easier to do business with regulators and improving service.

According to the macroeconomic data showed at the World Economic Forum in late January, the Canadian real economy is characterized by some strengths: lower business costs that facilitate the opening of new businesses, a tax system that encourages investment for new companies, sure access to the North American market, fiscal federalism that helps to share risks and labour market flexibility.

In addition, in the last years the main goal for the Canadian government was to consolidate the success of Canadian companies through international trade. In trade policy remains a priority of the Government's commitment to a more competitive economy of the country thanks to a prudent fiscal policy, the promotion of innovation programs and the strengthening of trade agreements. Among the measures for the economic growth one of the most important has been the almost complete elimination of duties and tariffs on imports. This has continued to stimulate trade agreements with more countries (recently with Panama, Peru, Colombia, Thailand, Morocco and free trade agreement, nearly completed, between Canada and the European Union). In 2013 more than 90 foreign multinationals have decided to land in Canada. This trade policy has diversified its export markets after the contraction of foreign demand as a result of the 2008 crisis. These recent measures with other approved previously are in order to protect the economy from the risks of recession. But prolonged slow growth in emerging markets or in the euro area could also adversely affect Canada. This could depress demand for Canadian exports, potentially causing more damage to the country’s fragile manufacturing sector and Canada’s overall gross domestic product.



ASSOCAMERESTERO (2014) Canada: dati macroeconomici 2013, Business Atlas

BANK OF CANADA (2014) Monetary Policy Report, BOC report, July (

BANK OF CANADA (2013) Canada Works, BOC report, may (

CIA - World Fact Book

HALTON R. (2013) Why was Canada exempt from the financial crisis?, Econ focus

NEVILLE A. and GRAYDON P. (2014) Lessons from the Financial Crisis: Bank Performance and Regulatory Reform, Discussion Paper (

OECD (2014) Canada overview, OECD Economic Surveys, June (

OECD - Historical Country Risk Classification


Editor: Giovanni AVERSA


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