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Lessons from the Financial Crisis: Bank Performance and Regulatory Reform

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  • Neville Arjani
  • Graydon Paulin

Abstract

The financial systems of some countries fared materially better than others during the global financial crisis of 2007-09. The performance of the Canadian banking system during this period was relatively strong. Using a case study approach together with empirical analysis, we assess some of the factors that contributed to this favourable outcome with a view to drawing useful lessons for regulatory reform. We argue that an important contributor to positive bank performance was a solid approach to risk management on the part of the Canadian banking system, an approach that was actively fostered by the domestic authorities. Efforts to buttress risk management were favourably influenced by several stressful yet instructive episodes in Canadian financial history. The 2007-09 crisis experience suggests a need to make risk management a pervasive element of financial system culture and emphasizes the importance of robust liquidity management.

Suggested Citation

  • Neville Arjani & Graydon Paulin, 2013. "Lessons from the Financial Crisis: Bank Performance and Regulatory Reform," Discussion Papers 13-4, Bank of Canada.
  • Handle: RePEc:bca:bocadp:13-4
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    File URL: http://www.bankofcanada.ca/wp-content/uploads/2013/12/dp2013-04.pdf
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    References listed on IDEAS

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    1. Laeven, Luc & Levine, Ross, 2009. "Bank governance, regulation and risk taking," Journal of Financial Economics, Elsevier, vol. 93(2), pages 259-275, August.
    2. Stephen Cecchetti & Michael R King & James Yetman, 2011. "Weathering the financial crisis: good policy or good luck?," BIS Working Papers 351, Bank for International Settlements.
    3. Rocco Huang & Lev Ratnovski, 2009. "Why Are Canadian Banks More Resilient?," IMF Working Papers 09/152, International Monetary Fund.
    4. Asli Demirguc‐Kunt & Enrica Detragiache & Ouarda Merrouche, 2013. "Bank Capital: Lessons from the Financial Crisis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(6), pages 1147-1164, September.
    5. Francesco Vallascas & Jens Hagendorff, 2013. "The Risk Sensitivity of Capital Requirements: Evidence from an International Sample of Large Banks," Review of Finance, European Finance Association, vol. 17(6), pages 1947-1988.
    6. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises; A New Database," IMF Working Papers 08/224, International Monetary Fund.
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    Citations

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    Cited by:

    1. Clara-Iulia, ZINCA (VOICULESCU), 2014. "Perspectives Of Risk Management In Banking In The Context Of Globalization And Current Economic Crisis," Management Strategies Journal, Constantin Brancoveanu University, vol. 26(4), pages 221-229.
    2. Aikman, David & Haldane, Andrew & Hinterschweiger, Marc & Kapadia, Sujit, 2018. "Rethinking financial stability," Bank of England working papers 712, Bank of England.
    3. Aikman, David & Galesic, Mirta & Gigerenzer, Gerd & Kapadia, Sujit & Katsikopoulos, Konstantinos & Kothiyal, Amit & Murphy, Emma & Neumann, Tobias, 2014. "Financial Stability Paper No 28: Taking uncertainty seriously - simplicity versus complexity in financial regulation," Bank of England Financial Stability Papers 28, Bank of England.
    4. Aikman, David & Galesic, Mirta & Gigerenzer, Gerd & Kapadia, Sujit & Katsikopolous, Konstantinos & Kothiyal, Amit & Murphy, Emma & Neumann, Tobias, 2014. "Taking Uncertainty Seriously: Simplicity versus Complexity in Financial Regulation," MPRA Paper 59908, University Library of Munich, Germany.
    5. repec:eee:advacc:v:36:y:2017:i:c:p:58-74 is not listed on IDEAS
    6. repec:kap:policy:v:50:y:2017:i:2:d:10.1007_s11077-016-9261-1 is not listed on IDEAS

    More about this item

    Keywords

    Financial institutions; Financial system regulation and policy;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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