Banking System and Global Financial Crisis

In the year of 2008, global financial crisis occured and sweep across the whole world, which ruined the economy of different countries, even the high-income countries were not able to survive in this disaster. However, compared with US and some highly developed Europran countries, Australia and Canada performed reletively well in the crisis and this fact raises the quetion of whether there was some features about its struture which like no other. This article will concentrate on the features of the banking systems of these two countries which helped them to survive in the crisis, the difference of these systems, together with the ways of conducting mortgage lending in these countries, will be argued in this article.

What common features of the banking systems of Australia and Canada might be behind the relative "good" performance of both of these country' banks though the global financial crisis (GFC)?

Firstly, the size of banks and financial institutions should be a vital point here. The financial system in Australia continued to grow during the last a few years, at least in reletive size, even exceeded the growth in direct finance. This situation also occured in Canada, the banking system in Canada can be seen as a system which contains large financial institutions and because of their size and diversification, the whole system remained stable throughout the crisis. Take US as an example, although strong financial markets has been developed, the financial institutions in US are still small, in response of these fragile institutions, a labyrinthine set of regulations were developed, in the end, all of these factors resulted in a fragmented nature of banking system. We have good reasons to believe the fail of American economy should be partly due to this fragile banking system. On the other hand, larger financial institutions and stronger banking systems saved Australia and Canada in the financial crisis.

Secondly, the federal government in both Australia and Canada support the financial institutions and their branches on a significant higher level than many other countries. Banking panic always results in serious consequences while we can never prevent bank failure from happening, that is just what concerns the banking system of US. However, in Australia and Canada, it is not a real problem because while bank fails there were no banking panics. Once a bank becomes insolvent, government would always cure this situation in different forms, such as guarantee its liabilities. In this way, even if bank fails, the government can control this situation and prevent it from being a panic. In the crisis of 2008, there was bank fails in many countries include Australia and Canada, but there were no panic in these two countries, that is one of the main reasons that they survives this crisis.

How do both of these systems differ, in structure and regulation, from the banking system of the United States?

Compared with the US, the struture of banking systems in both of Australia and Canada can be very different. Just as refered in the first part of this article, the size of financial institutions shows a significant difference between US and these two countries. The scale of Australian banks are always larger than banks in the US and the size of them are still increasing, in Canada, the robustness of financial institutions has been enhanced by the reletively large size of them, large size institutions finally build stronger banking system. In US, things are going on another way--thousands of smaller financial institutions occurs in the nature of fragment, the US has to build stronger financial markets to adapt this nature, that is one of the reasons of why American banking system seems so fragile in financial crisis.

Another main difference is the power over banking of Federal government. In Canada and Australia, the Federal government enjoys the right and ability to charter and regulate banks, which means that in most situations they can take effective measures to adjust banking system and the whole economy. However, in the US, things are never to be that easy. Instead of being chartered by the Federal government, the banks in the US are still chartered by state governments, state banking system still dominates, even after the civil war. In the US the Federal government is powerless about the banking system, as a result, the measure of adjusting economy is not that effective and once crisis breaks out, the banking system in the US is more likely to be the unlucky one.

Then it comes to the part of regulation, although the regulation of banks still performs differently in Australia and Canada, we can still get some similarities and the most important one is that both of these two countries have established concentrated regulation system. In Australia, the Australian Prudential Regulation Authority (APRA)has been established in 1998, this institutionseparates from the Reserve Bank , it has the power of supervising banks , insurance and superannuation funds while Federal Government still hold the power to regulate banks. In Cananda, in order to maintain financial stability, banks are tightly regulated. The regulation of banks in the US can be much more complicated, as discussed above, the regulation system in the US is a labyrinthine one which has been created to fit the fragmented nature. State government chater and regulate banks instead of Federal government. During the last two centuries, the number of regulate agencies keep on increasing. A bank in the US would be regulated by many agencies such as the Federal Deposit Insurance Corporation, the Comptroller of the Currency and the Federal Reserve. The competetion between multiple regulator is abother problem, banks have choices between different regulators and different regulating systems, which would makes regulations even more onerous.

What are the main differences with respect to the ways mortgage lending is conducted in these three countries?

The ways of exercising mortgage lending can be very different in these three countries. In Australia, stocks of residential mortgage-backed securities have been issued. Another important measure is the abandon of exit fees on home mortgages.

In Canada, the term of a mortgage may much shorter than the time that it amortized. If the mortgage were exercised by the bank's subsidiary, a consolidated entity would be created. After that, the burden of refinancing would be put on the consumer, in this way, the maturity mismatch could be resolved. Since it is illigal to evade capital requirements in Canada, banks have to use the power of branching systems and this process could be carried out.

In the US, banks also meet the problem of mismatching and because of the relative small size of banks, assesing a national capital market has become