In Saturday’s Ardfheis speech, the Taoiseach announced:
I will create a new central banking commission. This will incorporate both the responsibilities of the Central Bank and the supervision and regulatory functions of the Financial Regulator. This will build on best international practice similar to the Canadian model. And it will provide a seamless powerful organization with independent responsibility. It will have new powers for ensuring the financial health, stability and supervision of the banking and financial sector.
I interpreted this statement as implying that Canada has something called “a central banking commission” which incorporates both central banking and financial supervision. It turns out, however, that Canada does not have such a structure. Financial supervision in Canada is undertaken by a body called the Office of Supervision of Financial Institutions (OSFI). Canada’s central bank is the Bank of Canada. Here is a link to a page describing the role that the Bank of Canada plays in the Canadian financial system. It does not regulate banks.
Perhaps what the Taoiseach means is that our new central banking commission will adopt the same approach to banking regulation as the OSFI. This would constitute a substantial change. Canadian banks are subject to much tighter capital adequacy standards and so are much less leveraged than Irish banks. The Canadian government also intervenes to maintain far higher mortgage downpayment rates than seen here. This website explains how it works: There is a minimum downpayment of 5% and everyone who has a downpayment of less than 20% must purchase mortgage default insurance. This tighter approach to regulation has meant that the Canadian banking system has survived the recent turmoil without requiring government re-capitalisation.
Without doubt we are are going to need stricter banking regulation in the future. It should be stressed, however, that a transition from the leverage ratios and lending standards that have characterised our banking system in the recent past to those that prevail in Canada would be quite painful. In particular, it would likely lead to a period of very tight credit that would make it harder for the economy to recover from the current recession.