So why is it that Canada can avoid banking crises but the US can’t? As the below chart indicates, the US has suffered 12 banking crises since 1840 while Canada has experienced zero.
The Wall Street Journal provides some insight regarding the above question. Here are some excerpts highlighting the differences between the neighboring countries’ banking systems:
When it became a British colony, the majority of Canada’s population was of French origin — and the French inhabitants hated the British government.
So to keep the colony firmly within the Empire, British policymakers steered toward a government structure that would limit the power of the French-majority while also giving Canada more and more self-government. The eventual result was a highly-centralized federal government which controlled economic policy making and had built-in buffers for banker interests against populist forces, the paper argues.
That anti-populist political system — known in political science as liberal constitutionalism or liberal democracy — is a key ingredient in Canada’s stable banking track record . . . . [T]his kind of political system makes it difficult for political majorities to gain control of the banking system for their own purposes . . . .
Populist democracies like the U.S., on the other hand, tend to create dysfunctional banking systems because a majority of citizens gain control over banking regulation that steers credit to themselves and to their friends at the expense of the citizens that are excluded from the banking system . . . .
The history of the U.S. banking system is one in which the government forms partnerships with different interest groups at different points in history, and those coalitions jointly influenced the way the banking system was regulated, Mr. Calomiris argues.
“In populist democracies, such as the United States, the regulation of banking is used as a political tool to favor some parties over others. It is not that the dominant political coalition in charge of banking policy desires instability, per se, but rather, that it is willing to tolerate instability as the price for obtaining the benefits that it extracts from controlling banking regulation,” he [Mr. Calomiris] writes in his paper.
Note: The Wall Street Journal’s article is largely based off the arguments made by Columbia University’s Charles Calomiris in a paper presented at the Atlanta Fed’s 2013 Financial Markets Conference.
After the US Labor market started the year off strong, only 88,000 jobs were created last month, according to Friday’s job report. The Wall Street Journal notes that the number of jobs created last month was the lowest in any month in almost a year. Despite March’s stumble, the unemployment rate dropped to a four-year low of 7.6%. However, the decline was prompted by nearly a half-million workers leaving the job market, not job growth.
According to analysts, potential factors for the sharp drop in jobs include “budget turmoil in Washington and unseasonably cold weather in parts of the country.” Additionally, some economists believe that the sequester’s effect is likely to influence the recovery in the second and third quarters of 2013.
Here are some charts to help put the weak job’s report in perspective: