Understatement of the Year

In February, Barack Obama traveled to Canada for his first international trip as U.S. President. In commenting on the Canadian banking system, Mr. Obama provided the following observation:

“Canada has shown itself to be a pretty good manager of the financial system in ways that we haven’t always been here in the United States.”

Other authorities have been quick to provide a more objective and less understated perspective.
In October 2008, the World Economic Forum issued its Report on Global Banking. It ranked Canada as having the “Soundest Banking System in the World.”  In response to this ranking, the Financial Times recently touted Canadian Banks as the “Envy of the World.”

True to this form, on February 26, Canadian banks began reporting their profit figures for the quarter ending January 31. The results were extraordinary: The Royal Bank of Canada (RBC) posted a quarterly profit of $1.05 billion; The Toronto Dominion Bank (TD Bank) posted a $712 million profit; and the Canadian Imperial Bank of Commerce (CIBC) posted a profit of $147 million. Each of these profit figures was above analysts’ expectations.

Furthermore, since the banking crisis began, the top five banks have reported total profits of $18.9 billion. All five are expected to remain profitable during and throughout the global economic meltdown. All five banks rank in the top fifteen in the world in terms of market value and TD Bank and RBC are among only seven banks worldwide that still carry a Moody’s Triple-A credit rating. Not surprisingly, Canada is the only country on earth that has never had a bank failure.

At the same time, U.S. Banks have floundered, with the five largest U.S. banks losing more than $37 billion since the credit crisis began. The U.S. has spent most of the $700 billion it earmarked for bank bailouts and the final tally is estimated to be in the trillions of dollars. The picture is similar in Britain with the head of the Bank of England recently saying that it is “impossible” to know how much money it will take to fix his country’s banks.

Despite Mr. Obama’s rather sheepish seal of approval, the U.S. is indeed looking to Canada for a way out of its banking mess. Paul Volcker, former Federal Reserve Chairman and close Obama advisor on this issue, recently stated: “what I’m arguing for looks more like the Canadian system than the American system.”

Other countries hard hit by the crisis are following suit. Ireland recently pledged to create a new national banking system “built on the best international practice, similar to the Canadian model”. Moreover, at the recent G-20 summit in Washington, the hot topic was reforming banking and regulatory systems to reflect the Canadian model. At the G20 summit in London in April, fixing the banking and credit crisis was an official topic and once again all eyes were on Canada to provide guidance and leadership in this area.

Not only does all of this give Canada credibility on the global stage, it provides credence to Canada’s ambitions for international prominence and leadership. Canada’s leadership on banking issues can play a significant role in a campaign to alter the world’s perceptions of Canada. Canada must engage in such a campaign. Using its leadership on the banking crisis as a springboard, Canada can make a visible and forceful showing to the world that it can undertake international leadership on those critical global issues that the world is forced to confront as the 21st Century progresses, for example, the global warming crisis and dwindling global energy resources.

Canada’s emergence as a world leader on these global issues and the resulting transformed perception of Canada will also serve to aid Canada as it confronts those that threaten infringement of its sovereignty and security. For example, in the quickly escalating dispute over Arctic energy reserves involving, among others, the two titans Russia and the United States, it will be of absolute importance that Canada disabuse these countries of the notion that Canada will simply roll over and accept anything less than what rightfully belongs to Canada. To the extent that Canada is regarded as a credible world leader, it will have an easier time standing up to Russia and the U.S. in this regard and will have an easier time garnering world support, which it will need, for its position.

With its best days ahead, the 21st Century is not the time for Canada to be perceived, as it has in the past, as meek or boring. The banking crisis is just the first of many global crises that the world will face in this new century. If Canada can capitalize on its recent, stunning success in weathering the credit and banking crisis, then Canada can emerge as a respected world voice and the “go-to” leader on the many upcoming global issues. The result will be a stronger Canada and a stronger planet.