While America’s bailed-out banks lobby against reform, Canada’s profitable banks are asking for more

By Derek DeCloet, Business Week

On the night hockey superstar Wayne Gretzky lit the cauldron to open the Winter Games, something was conspicuously absent in the host city: winter. With rain and temperatures near 50F, Vancouver was the focus of a weather-obsessed nation.

Right now, Canada’s business community is fretting about a different sort of climate event. The country’s housing market is so hot, and has become so untethered from its foreclosure-ridden U.S. counterpart, that alarms are beginning to sound about a Canadian real estate bubble. In Toronto, the average home in January sold for about $392,000 (U.S.), a 19% jump from a year earlier. In prime areas of Vancouver, you can find Lilliputian one-bedroom condos listed for $575,000 or more. Price increases are forecast for every province.

For a country whose economic fortunes usually move in lockstep with America’s, this is an odd—and disconcerting—phenomenon. The most surprising part is who’s trying to cool off home prices: Canada’s top bankers. They earn huge profits from mortgages. Yet the leaders of the major banks recently urged the government to tighten mortgage rules to chill down the market, even though that would cut into profits in the short term. And the government quickly responded, announcing changes on Feb. 16 that enforce stricter requirements for borrowers, among other (tougher) rules.

This effort may be the surest sign yet of the gulf between the Canadian and American financial systems. More than $1 billion in goods cross the border daily, but when it comes to banking, the two countries are leagues apart, and the credit crisis proved it. Canada did not have to bail out its banks (though Ottawa did adopt measures to lubricate the credit markets). When American and European banks were teetering in 2008, only one of Canada’s six major banks reported a loss. Last year, none did.

The stability hasn’t gone unnoticed. Canada’s bankers have won admiration from President Barack Obama, former Federal Reserve Chairman Paul Volcker, and Nobel prize-winning economist Paul Krugman, among others. What explains the success? Krugman points to stricter regulation—certainly a factor but not the whole story. Yes, regulators kept Canadian banks from taking on too much debt, which helped them through the crisis, but there were cultural and business reasons at play, too.

Read more here: http://www.businessweek.com/magazine/content/10_09/b4168072832439.htm