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 Originally Posted by Poopadoop
I've heard the opposite explanation given for why Canada was less affected by the 2008 crisis than the US.
http://www.nber.org/digest/dec11/w17312.html
Though I guess you could say the difference was not in regulation vs. lack of regulation but in centralized regulation vs. fragmented regulation.
It's more about what incentives individual regulations cause. I don't know anything about the Canadian banking system proximate to 2008. I know the US system well and the regulations incentivized the lending practices that have post hoc been labelled poor.
Leading up to 2008 was essentially the banks doing what was in their best interests given the standards the government set. Those standards led to outcomes that were atypical. When nominal GDP expectations began falling due to the Fed conducting contractionary monetary policy for somewhat unrelated reasons, the first thing to "go" was the newly atypical portion of the economy.
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