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SVB’s woes did prompt Canada’s bank regulator to take temporary control of its operations here, but those were relatively inconsequential, run out of a single office on Bay Street.
Why haven’t Canadians seen any SVB-like problems at home?
The answer is not that Canada has better, more competent bankers or superior regulators.
Rather, over time most of the Canadian public and those they elect in Ottawa came to believe that a smaller number of national, well-capitalized, and well-regulated banks with appropriate political oversight were more apt to protect depositors’ savings and the economy generally.
That policy path was a conscious approach to managing risks inherent to banking and was entrenched in the 1920s after 50 years of disappointment with smaller, regional banks. It was deviated from briefly in the 1970s with the creation of two Western Canadian-based banks (the Canadian Commercial Bank and The Northland Bank), two tiny institutions whose failure in 1985 reinforced the policy path taken in the 1920s.
Canada’s banking preferences stand in stark contrast to a U.S. banking system where suspicion of large, national banks was stitched into the political fabric in the 1820s and 1830s by populist president Andrew Jackson. Jackson embodied a fear that large banks concentrated economic power in the hands of a few. That suspicion survives today and is given life by the importance U.S. policymakers and their voters give to sustaining U.S. regional and community banks.
The ghosts of Canada’s failed banks are numerous and storied. There is the Commercial Bank of Kingston, Ont., which failed within months of Confederation after the federal government refused to bail it out, a move that cost Canada’s first finance minister his job and put the prime minister, Sir John A. Macdonald, in a difficult spot as he owed the bank $80,000, a huge sum at the time.
In 1871 a Bank Act was passed by Parliament that was supposed to make banking safe for Canadians and businesses. It did nothing of the kind. As the Canadian economy worsened after 1873 smaller, local banks began to fail. New Brunswick witnessed the demise of the Bank of Acadia and then the Westmoreland Bank. In Nova Scotia, the Bank of Liverpool met its demise. Quebec’s Consolidated Bank was next and was followed by the Montreal-based Mechanics Bank, an institution that served largely the working poor. Ontario had its share of bank failures too.
This content was originally published here.