Consumer Protection Issues and "Non-Banks": A Comparative Analysis

In 1967, Canada removed interest rate controls, whereas this practice continued into the late 1980s in the United States.5 When inflation prompted an increase in interest rates, Canada was unaffected as banks possessed the ability to adjust their interest rates accordingly.6 However, the US banking system suffered disintermediation because a parallel banking system was developed to funnel unregulated market funds into bank securities or bank-sponsored products (this is commonly known as "shadow-banking").7 Loans were repackaged to avoid the bank's balance sheet and the regulators were unable to catch this kind of behavior.8 Canada did not develop a large shadow banking sector and also had relatively lower exposures to collateralized mortgage obligations, structured investment vehicles, and credit default obligations.9 Fewer numbers of large banks enabled stability, which allowed higher equity returns with lower risk funding practices while holding greater equity in Canada.10 B. Structure The most significant differences between Canada and the United States during the financial crisis were the institutional structure of financial systems and the modes of financial sector regulation.11 Up until the mid-1950s, Canada was completely free from government intervention, thus impacting the financial structure of the economy.12 Five major banks predominantly dictated regulatory trends as a result of financial and political clout.13 In comparison, the United States was subject to far more regulation early on in its history. The CDIC is a federal crown corporation that protects savings in the event a member institution collapses.113 The CDIC normally works through the OSFT to address any concerns it may have about individual institutions.114 Through monitoring, the CDIC takes necessary action depending on the condition of the member institutions.115 Seven deposit categories are protected up to a maximum of $100,000.'16 These categories include savings accounts, checking accounts, term deposits (GICs and debentures), money orders, travelers' checks and bank drafts, and accounts that hold funds to pay taxes on mortgage properties.117 To be eligible, the deposit must be payable in Canada in Canadian currency and must be repayable no more than five years after the date of deposit.118 B. Resolution Tools Resolution tools depend on the circumstances of a particular situation and consider variables such as the size and complexity of banks, franchise value, and availability