When Barack Obama wants to improve his political fortunes, he scolds the "fat cats" of Wall Street, with their "perverse incentives" to earn "obscene" bonuses. When Stephen Harper wants to improve his, he looks into television cameras and boasts, as he did Sunday morning, that Canada is "home to the most solid financial sector in the world."
In the public discourse of post-crisis America and Europe, bankers are the enemy. In Canada, they've practically become a government-promoted tourist attraction. You've got the Rockies and Quebec City and the CN Tower, but don't forget to stop by Royal Bank Plaza while you're here, eh? As unusual as it may be for a politician to link arms with the banks the way Mr. Harper has, it's also understandable. They're a major reason he was in the world's spotlight all weekend, and he needs them if Canada is going to keep its international pull on matters of high finance.
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This is what happens when all of your banks survive without cash infusions from the public purse during the worst financial convulsion in 75 years: Paul Krugman and Paul Volcker begin touting your system as a model and suddenly the world is prepared to listen. Audience equals influence - which explains, in part, why Canada triumphed this weekend over Germany, France and Britain, three countries with a combined economic output of nearly $10-trillion, in the debate over a global bank tax. London and New York will always outrank Toronto on the list of the world's important financial centres, but after the fiascos of Royal Bank of Scotland, AIG and Fannie Mae, Canada outranks Britain and the United States in moral authority when it comes to bank reform.
G20 Communiqué
How long will this last? The answer is, only as long as Canada's economy and banking system continue to outperform. If it turns out there's a housing bubble in urban Canada, and real estate values drop - all bets are off. If Canadian bankers let their good press get to their heads and start doing silly things - ditto.
The odds of both may be low but they aren't zero, either. On a property bubble, the evidence is mixed. Probably the most accurate reading is that in some pockets of some cities, home prices are out of line with the economic fundamentals, but an American-style price shock isn't very likely.
As for the second risk: it's easy to forget, because they have been praised so lavishly in the past 18 months, that Canadian financial executives are not immune to groupthink, and that they, like bankers in all countries, have occasionally made multibillion-dollar mistakes. There was the commercial real-estate disaster of the early 1990s, and the telecom lending bust that struck TD in the early 2000s, and the stumbles of Manulife Financial (on stock market bets) and Canadian Imperial Bank of Commerce (on credit market bets) in the last crisis. Both were able to raise the capital they needed to survive it, allowing Canada to claim bailout-free status. But there was an element of good fortune, as well as good crisis management, in that.
Still, Canadian banks have got a halo around them now, and any savvy politician would want to share in that. At the G20 summit, Mr. Harper used his new influence reasonably well. Instead of the bank tax, the group's final document focused on building up capital so that banks are sturdy enough to withstand future financial shocks, "discouraging excessive leverage," and finding ways to allow major banks to fail "without taxpayers ultimately bearing the burden."
And rightly so, because what were the real lessons of the 2008 crisis? That complacency (and, yes, "perverse incentives" for making large bonuses) can be fatal when they encourage banks to borrow too much and lend with too little discipline; that banks need to be closely supervised and an extreme deregulation agenda has no place in the financial system; that the world needs a better way of keeping track of derivatives; that there's got to be a better way of dealing with crippled institutions like Lehman Brothers than either bailing them out or allowing them to go bust and cause financial mayhem.
The G20 made a modest amount of progress on these problems in Toronto. Is the global financial system a lot more stable today than it was last week? No. Is it headed in the right direction? Slowly, yes.
Will Canada continue to be a driving force? Perhaps, but increasingly it will have to share the stage with the likes of South Korea, India, Brazil and yes, the U.S., where even Citigroup is looking healthier these days. As the crisis recedes into the background, Mr. Harper's pull will grow weaker. But the crisis - and Bay Street's good behaviour - gave the Prime Minister and Canada a lot more authority than they otherwise would have had.
Derek DeCloet