The world is now emerging from the first global financial crisis since the 1930s, and Canada's experience may teach us some lessons.

The Canadian financial system weathered the global financial crisis relatively well. No Canadian institution was excessively affected by toxic assets, no public funds were injected into financial institutions and Canadian banks remained liquid, profitable and active in lending.

The contrast between the Canadian experience and those of the U.S., U.K. and most of Europe reflects different regulatory regimes, financial institution lending practices and structures.

Interestingly, Canadian practices were often criticized before the crisis as being too prudent and unwelcoming to innovation.

Canada has integrated regulation of banks, insurance companies and large investment dealers.

It allows securities firms to be bank-owned and regulates the banks on a consolidated basis worldwide, in contrast to the regulatory silos other countries erect.

The Canadian approach is both prescriptive and principles-based, obliging institutions to meet the intent of a regulation as well as its explicit requirements.

Canada's regulator, the Office of the Superintendent of Financial Institutions, meets regularly with the largest financial institutions to ensure that they are governed to achieve soundness and stability, and communication is mandated among Canada's key agencies responsible for the sector.

Canadian capital requirements are higher than the international standards, and Canadian banks typically maintain capital above these minimums. They rely more on deposits than on wholesale funding, by comparison with banks in other countries, which gives them more stability when markets are volatile.

The vast majority of Canadian mortgages are originated by banks to hold in their portfolios, giving them an incentive to avoid subprime mortgage lending, unlike the situation in the U.S. where most mortgages were originated to sell.

Mortgage quality is buttressed by regulations requiring insurance for high-ratio mortgages and rigorous credit standards for mortgage insurance eligibility.

Canadian financial institutions are much less highly leveraged than their international peers. Canada has a regulatory leverage cap for the asset-to-capital ratio of 20 to 1, and the major Canadian banks averaged a leverage ratio of 18 in 2008.

The comparable figure for many U.S. banks was above 25, and numerous European banks were over 30.

Finally, this financial-sector framework overlies a Canadian economy with strong fundamentals: solid corporate balance sheets, low and stable inflation, low net foreign indebtedness, the lowest net government debt among the G-7 countries and an actuarially sound national pension plan.

This combination of macroeconomic management, regulation, governance and banking practices has produced what the World Economic Forum rates as the world's soundest financial system.

As the world strives for financial reform, Canada can teach these lessons:

First, macroeconomic behaviors and microeconomic systems do not exist in splendid isolation from each other. Prudent fiscal and monetary policies positively affect financial sectors; conversely, macroeconomic policies that contribute to imbalances will eventually infect financial markets no matter how sound the regulatory systems.

Second, the reality of pervasive globalization should inform regulatory system reform. An effective reform requires getting the "perimeters of regulation" right: broad to avoid regulatory arbitrage, comprehensive to cover systemically important firms, smart to allow efficient intermediation and simple to avoid debilitating complexity.

Third, prudence may be boring, but it pays off, particularly when viewed over an entire business cycle. Regulatory systems and business planning should now be based on the business cycle as the norm, not on a presumption of benign, and steady, economic growth. The effectiveness of safety nets, including regulation, must be evaluated over the cycle.

Fourth, regulators cannot be the first line of defense in our complex, decentralized, market-based system. The front line must be at the level of the firm, embedded in its governance structures, procedures, incentives and values. Regulatory systems must be principle-based as well as prescriptive to put the onus on companies to manage for safety and soundness.

Fifth, though reform should increase the quantity and quality of required capital reserves, it also should address the concurrent problem of pro-cyclicality. Regulatory systems that are pro-cyclical, in effect, require more capital in downturns, leading to deleveraging and worsening the decline. Taking a complete-cycle view of appropriate levels of regulatory capital would allow for supplemental capital accumulation during expansions that can be drawn down during contractions.

Sixth, to deal with the "too big to fail" problem, some advocate separation of what financial institutions can do, while others argue for elements of the Canadian system, including enterprisewide risk management, leverage limits, more unified regulation and greater transparency. Policymakers should focus reform efforts on the core problems the crisis made self-evident, emphasize prevention rather than remedies and ensure a more comprehensive and consistent regulatory environment.

Seventh, the crisis underscored the need for greater regulatory harmonization across national systems and more effective international cooperation. The G-20 has been designated the key forum for international economic cooperation, and it designed the international response to the crisis. But as this complex process unfolds, the risk is, the urgency and cohesion of 2009 could give way to complacency as the global recovery strengthens and domestic interests reassert themselves.

The crisis provided an imperative to learn from what went wrong, and it will be important to learn these lessons well.

Canada, as co-chair of the G-20 summit, can play a leadership role, buttressed by its unique experience in avoiding the worst of the crisis. Citizens want signs of progress, and financial markets need certainty about how the reformed system will work.

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