According to the survey by the World Economic Forum, Canada has the world’s best banking system. It is followed by Sweden, Luxembourg and Australia. Canada received 6.8 out of total 7 points and topped the list. The United States, which has seen a lot of big name bank failures in the global financial crisis, has fallen down to 40th place.
According to World Economic Forum, this report is based on findings of top executives. The executives handed the banks a score between 1.0 (insolvent and possibly requiring government bailout) to 7.0 (healthy and with sound balance sheets). This report was released because most of the central banks in Europe, United States, China, Canada, Sweden and Switzerland slashed their interest rates in an attempt to end panic selling on the markets and also to restore much shaken trust in the general banking system to avoid financial meltdown.
The Best Banking System - Canada
The main reason behind the success of Canadian banks is solid funding and conservative consumer lending. Canadian banks are more stringent in their policies regarding the amount of loans they can extended to consumers compared to other international banks. Consumers wanting to lend from Canadian banks are required to set aside a minimum of 7 percent for Tier 1 capital, compared with 6 percent for U.S commercial banks.According to the Canadian banking regulator, the institutions can lend up to 20 times their capital base.
The European peers assets were almost more than 30 times their capital. In the U.S and U.K, the average weighted capital was more than 25 times.
Canadian regulators resisted pressures from the banking executives to loosen the lending restrictions, while the economy was booming. The banks employed stricter guideline measures for lending and were better at navigating through the global financial crisis. Moreover, most of the Canadian banks are also somewhat reluctant to lend to homebuyer with low credit scores, which provides less exposure to mortgage defaults. Subprime loans account for only about 5 percent of the total in Canada; while in the U.S it was at 20 percent where independent lenders and mortgage brokers were competing with commercial banks to win over the business at the cost of attracting high-risk borrowers.
Swiss Private Banking
Amongst the notable contenders, Switzerland comes in at 11th place given its traditional place in the top echelons of the private banking world. Once shrouded in complete secrecy, the Switzerland banking system’s confidentiality principles have come under severe pressure for more disclosure, especially in reference to money laundering and terrorist funding issues being cited.