Too Small to Fail: Canadian Banks, Regulation, and the North American Financial Crisis

This paper examines the recent performance of Canadian banks in light of the recent North American financial crisis. The extent of the spread of the crisis to the Canadian financial sector is analyzed, and the resulting impacts on the Canadian banks' balance sheets are studied using information from the Canadian financial flow matrix as published by Statistics Canada. The constrained financial flow model estimated and simulated in this study shows that while there has indeed been some spillover from the United States into the Canadian banking sector, this result is much more modest than in the United States. Some policy issues with respect to tax and regulatory structure are discussed in conclusion.