I’ve recently seen a number of articles discussing the differences between the Canadian and U.S. banking systems. Most of the discussion focuses on why the Canadian financial market didn’t have the same kind of meltdown as the U.S. did with the sub-prime mortgage crisis.
While obviously a complicated subject, it seems to come down to a couple of important facts:
- Canadian mortgages are secured and loans worth 80 per cent or more of the property’s value are insured by the Canadian Mortgage and Housing Corporation.
- Canadian banks tend to have branches across the country that allow for loss in one area to be balanced out by gains in another region.
- Banks in Canada also tend to hold mortgages on their books, as opposed to the U.S. where banks frequently sell them off.
Finally, the majority of Canadian banks use more stringent criteria to vet potential mortgage holders and, in my opinion, that’s a good thing for all of us.
