Some reasons why Canadian banking is special
Via Scott Sumner, here is a list from Nick Rowe:
1. We never had restrictions on interstate banking, so Canadian banks spread their assets and liabilities across Canada. (So it doesn’t matter if a local housing market goes bust).
2. We don’t have Glass-Steagal. The investment banks joined the retail banks some years ago.
3. We don’t have mortgage interest deductibility from taxes. So paying down your mortgage is a tax-free investment. So most people want to pay down their mortgages.
4. (Except in Alberta), mortgages are fully recourse. You can’t just walk away from a negative equity home and hand the keys to the bank; the bank will come after you for the difference.
I wouldn’t describe those differences as “Canada is more regulated”.
But we do have higher capital requirements. And mortgages over 80% must be insured (mostly by the government-owned CMHC).
I would add one more feature of the Canadian banking system, which it shares with a number of other systems. If a Canadian investor wishes to take some risk, the New York-based banks may be the most efficient means of doing that.
Addendum: Megan McArdle offers a theory of Canada.