Obama keen to use Canadian model to end US fiscal meltdown: Canada paper

May 6th, 2009 - 5:01 pm ICT by ANI  

Barack Obama New Delhi, May 6 (ANI): US President Barack Obama, contemplating sweeping reforms to the American financial system, citing Canada as a model worth emulating to navigate the current volatility in the financial markets with limited impact.

An article appearing in the Toronto Star and released by the Canadian High Commission in New Delhi asserts that Canadian banks have earned international acclaim for their continued sound condition achieved mainly through prudent risk decisions and scrupulous regulatory supervision of its financial sector.

According to David Olive, the author of the write up, Obama is quoted as saying “Canada being a good example, and they’ve actually done a good job in managing through what was a pretty risky period in the financial markets. ”

“When it comes to something like investment banking versus commercial banking, the experience in a country like Canada would indicate that good, strong regulation that focuses less on the legal form of the institution and more on the functions that they’re carrying out is probably the right approach to take,” the article quotes Obama, as saying.

Obama praised Canada’s banking system in an earlier interview, in advance of the G20 meeting of world leaders in London last month.

According to the Toronto Star, Obama’s more recent comments suggest his economic team is closer to deciding on an approach to a long- anticipated overhaul of financial regulation in America, where the current global financial crisis has its origins.

Olive claims that the “Canadian option” of stricter regulations and stronger enforcement of them by a beefed-up existing regulatory regime would best fit Obama’s approach of tweaking, rather than overturning, the status quo.

Canadian banks are limited by federal regulation to 20 dollars in loans and other investments for each one dollar in capital. The “reserve ratio” in the U.S. and Europe ranges as high as 40: 1, a level of risk that some of the biggest world banks proved unable to handle when the U.S. housing boom collapsed in 2007 and default rates on mortgages soared.

All of Canada’s six largest banks follow the supermarket model, having absorbed the securities industry and the trust sector in the 1980s. Only insurance, in which the banks merely dabble, remains mostly outside the banks’ ambit, despite years of bank lobbying of Ottawa to allow the marketing of a wider range of insurance products. (ANI)

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