Our banking rules are smarter, not tighter

For all their growing closeness on other matters, such as global warming, Barack Obama and Stephen Harper could not be further apart on the issue of how to reform banking regulations, in the wake of the worst financial crisis in 75 years. A week after unveiling tough new rules that would limit the size and scope of banks’ activities—and two weeks after hitting them with a hefty new tax—the President took at least a dozen swipes at “banks” or “bankers” in his state of the union speech. Over and over again, he reminded his listeners of the banks’ part in the crisis, of how they had had to be bailed out at public expense, and of how, once the worst had passed, they had quickly reverted to their old ways.

The next day, Harper took the stage at the World Economic Forum in Davos, Switzerland, to deliver a very different message. While some reform was in order, he allowed, “Canada believes that financial sector regulation . . . must not be excessive.” He understood how, “in situations very different than Canada’s,” public anger over the failure and subsequent bailout of the banks had fuelled “demands for tough or even retaliatory measures.” But Canada “will not go down the path of excessive, arbitrary, or punitive regulation of its financial sector.” Canada would go its own way, its banking system would remain a haven of relative freedom, whatever certain other countries might choose to do.

The odd thing about this parting of the ways is that some of Obama’s closest advisers and acolytes seem to think they are copying the Canadian model. By forcing banks to get out of the riskier types of trading and capping their size, they imagine themselves to be replicating the safe, stolid commercial banks that have lately made Canada famous. The former chairman of the Federal Reserve, Paul Volcker, on whose recommendations the President’s reforms are based, has spoken of his fondness for the Canadian system, with its supposed focus on the traditional business of banks, taking deposits and making loans. The influential columnist Paul Krugman wrote this week in praise of Canada’s “boring” banks.

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