How the Canadian Banking System Survives the Subprime Meltdown Essay

How the Canadian Banking System Survives the Subprime Meltdown - Essay Example High interest rates in mortgage had increased the lending operations of the commercial banks. The quality of credit started to fall drastically. This had resulted in the collapse of many financial institutions. However, the Canadian banking system had managed to survive these critical conditions. Thus, it is highly rational to realize the underlying cases for this success. The following essay would consider the background, methodology and analysis regarding the topic of discussion (Brender & Pisani, 2010). The goals of the essay are as follows: To understand the nature of Canadian Banking System. To interpret empirical data explaining the various types of banking economic indicators. To analyze the models or the policies those were used by the banking institutions of Canada to protect their economy from the impending danger. To conclude on the overall performance of the Canadian banks in the context of the matter of discussion. Background It was found that during the subprime meltdow n, the nation of Canada did not encounter an absolute collapse of its financial institutions. The five commercial banks in Canada had experienced profit during the financial crisis in the money markets of other economies. ... There are three characteristics of the monetary authorities in Canada: The different monetary policies which are undertaken by the commercial banks in Canada are introduced by the Bank of Canada. This banking organization is owned by the government of the country and is highly interlinked with the Federal government. However, it should be observed that the federal government is not allowed to interfere in the monetary affairs of the country. The rates of interests charged on different assets in Canada are the same for similar assets in the other regions of the country. The Bank of Canada is the primary organization that engages in the function of issuing money to the economy. There is only a single policy instrument that is adopted by the Bank of Canada. The Bank of Canada often charges the overnight interest rates for the country. By changing the level of overnight interest rates, the bank introduces various changes in the different interest rates in the market. Reasons for the Succ ess Many analysts and economists believe that the strong regulations which are implemented by the commercial banks of Canada were responsible for their successful performance even at the critical situations. Moreover, the commercial banks in Canada were highly united with each other, which in turn had helped them to coordinate and take business decisions jointly. In Canada, if the commercial banks had offered credit to the individuals on 80% of the value of a house loan, then they ensured that the debtor had insurance for the mortgage. The banks only issued loans to those individuals, with a worth of 80% (mortgage value), who could offer the mortgage insurance against the loan. Moreover, the commercial banks also