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Why didn't Canada have a banking crisis in 2008 (or in 1930, or 1907, or …)?

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  • Michael D. Bordo
  • Angela Redish
  • Hugh Rockoff

Abstract

type="main"> The financial crisis of 2008 engulfed the banking system of the US and many large European countries. Canada was a notable exception. In this article we argue that the structure of financial systems is path-dependent. The relative stability of the Canadian banks in the recent crisis compared to the US in our view reflected the original institutional foundations laid in place in the early nineteenth century in the two countries. The Canadian concentrated banking system that had evolved by the end of the twentieth century had absorbed the key sources of systemic risk—the mortgage market and investment banking—and was tightly regulated by one overarching regulator. In contrast, the relatively weak, fragmented, and crisis-prone US banking system that had evolved since the early nineteenth century led to the rise of securities markets, investment banks, and money market mutual funds (the shadow banking system) combined with multiple competing regulatory authorities. The consequence was that the systemic risk that led to the crisis of 2007–8 was not contained.

Suggested Citation

  • Michael D. Bordo & Angela Redish & Hugh Rockoff, 2015. "Why didn't Canada have a banking crisis in 2008 (or in 1930, or 1907, or …)?," Economic History Review, Economic History Society, vol. 68(1), pages 218-243, February.
  • Handle: RePEc:bla:ehsrev:v:68:y:2015:i:1:p:218-243
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    File URL: http://hdl.handle.net/10.1111/1468-0289.665
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    References listed on IDEAS

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    Cited by:

    1. Michael D. Bordo, 2017. "An Historical Perspective on the Quest for Financial Stability and the Monetary Policy Regime," Economics Working Papers 17108, Hoover Institution, Stanford University.
    2. repec:eee:advacc:v:36:y:2017:i:c:p:58-74 is not listed on IDEAS
    3. repec:bla:ecopol:v:29:y:2017:i:3:p:179-208 is not listed on IDEAS

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