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David Olive
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Barack Obama, contemplating sweeping reforms to the U.S. financial system, cited Canada as a model worth emulating in an interview published yesterday.

“You know, I’ve looked at the evidence so far that indicates that other countries that have not seen some of the problems in their financial markets that we have nevertheless don’t separate between investment banks and commercial banks,” the U.S. president told New York Times economics columnist David Leonhart in a Times Magazine cover story yesterday. “They have a `supermarket’ model that they’ve got strong regulation of.”

“Like Canada?” Leonhart asked.

“Canada being a good example,” Obama said. “And they’ve actually done a good job in managing through what was a pretty risky period in the financial markets.”

“When it comes to something like investment banking versus commercial banking,” Obama said, “the experience in a country like Canada would indicate that good, strong regulation that focuses less on the legal form of the institution and more on the functions that they’re carrying out is probably the right approach to take.”

Obama praised Canada’s banking system in an earlier interview, in advance of the G20 meeting of world leaders in London last month. His more recent comments suggest Obama’s economic team is closer to deciding on an approach to a long-anticipated overhaul of financial regulation in America, where the current global financial crisis has its origins.

Wall Street observers worry Obama might push for a breakup of America’s largest banks and other financial institutions, often deemed “too big to fail,” in order to make them easier to manage prudentially and to regulate.

At the very least, a rough consensus of observers believe, Obama would reinstitute the divorce of commercial from investment banking that Franklin Roosevelt forced in 1933, and which remained in effect until 1999. Not long after, America’s disastrous housing boom got underway along with the distribution of “toxic” U.S. subprime, or `junk’,” mortgages to lenders worldwide.

But the “Canadian option” of stricter regulations and stronger enforcement of them by a beefed-up existing regulatory regime would best fit Obama’s approach of tweaking, rather than overturning, the status quo.

Canadian banks are limited by federal regulation to $20 in loans and other investments for each $1 in capital. The “reserve ratio” in the U.S. and Europe ranges as high as 40:1, a level of risk that some of the biggest world banks proved unable to handle when the U.S. housing boom collapsed in 2007 and default rates on mortgages soared.

All of Canada’s six largest banks follow the supermarket model, having absorbed the securities industry and the trust sector in the 1980s. Only insurance, in which the banks merely dabble, remains mostly outside the banks’ ambit, despite years of bank lobbying of Ottawa to allow the marketing of a wider range of insurance products.

As a result of their largely shunning the purchase of multimillion-dollar packages of U.S. junk mortgages, Canadian banks have earned international acclaim for their continued sound condition. But that had nothing to do with the Canadian banks’ size or diversity of functions, and everything to do with prudent risk decisions and scrupulous regulatory supervision.

Canada’s five largest banks now are among the 50 most valuable in the world. A decade ago, none were in those ranks.

HOLMES ON HOMES: Common sense is the best defence

MIKE HOLMES
Province

Break-ins are a sad fact of life and protecting your family and your home should always be your top priorities.

That’s why home security questions often come up when people are planning their renovations. What kind of doors and windows are the most secure? Should I pre-wire my home for a future security system when I’m running telephone or speaker wire? Do I need exterior lighting?

The answer is yes. There are many security measures you can include in your renovation plans, beyond signing up for an expensive electronic security monitoring system.

But your first line of defence is common sense: Lock doors and windows, have good exterior lighting, add peepholes in doors, keep shrubs trimmed around doors and windows, take extra precautions when you go away (bring in mail, lights on timers, don’t let mail or newspapers pile up, keep lawn cut and snow shovelled.)

Most home break-ins are through front or back doors; next come basement or ground floor windows. Then — believe it or not — doors and windows left open.

Home security doesn’t have to be high tech. Burglars can be discouraged — by the extra time it’ll take to get in for a quick job — by noise that might draw attention to them, and by lights that reveal what they’re doing. So that means good locks, alarms and motion-sensor exterior floodlights. All of which are easy to install, and relatively cheap.

To make sure your home is hard to get into:

Make sure all of your exterior doors are solid, with good deadbolts. Your doors have to be strong.

McClatchy Newspapers
Province

WASHINGTON — Two years after fissures in the U.S. residential housing market gave way to a national collapse of home prices and sales, experts warn the next shoe to drop is the commercial real-estate market, bringing more woes to the battered economy.

Thousands of commercial mortgages valued at hundreds of billions of dollars are approaching a renewal date. By some estimates, two out of every three will no longer meet the original loan conditions and won’t be able to refinance. And with prices for commercial properties expected to plunge, a vicious cycle may unfold much as it has in the U.S. housing market.

“It’s the next wave to hit. It’s the next round of bad news,” said Scott Talbott, senior vice-president of government affairs for the Financial Services Roundtable, a trade group for big banks and other financial institutions who are collectively concerned about the coming problems.

A commercial-mortgage meltdown is likely to prolong the U.S. economic recovery. The falling prices in commercial real estate will lead to additional bank losses at a time when banks are sapped by home-mortgage defaults and soaring credit-card defaults. This could lead to future additional taxpayer assistance for the banks.

The reality is already on display. On April 16, the U.S.’s second-largest mall developer, General Growth Properties, filed for bankruptcy protection. The Chicago-based company owns more than 200 malls across the U.S., and was unable to renegotiate its debts as they came due.

Six days later, a 40-storey office tower on New York’s Avenue of the Americas was seized by its creditor, a Canadian-owned pension fund. The tower’s owner, Macklowe Properties, couldn’t meet loan terms.

“On the street, the rumour is it is coming and it’s going to come fast and furious. Some people are predicting September,” said Paul Waters, a New Yorkbased executive vice-president of brokerage operations in North America for NAI Global, a top-five commercial realestate brokerage with operations across the globe.