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September 2011 In August, Standard & Poor's (S&P) downgraded the U.S.'s credit rating from AAA to AA . Meanwhile, Canada retained a AAA rating with all three major credit rating agencies. At the same time, Canada's unemployment rate dipped to 7.2 percent. The U.S.'s unemployment figure, on the other hand, stalled at 9.1 percent during the same period, where it has hovered since the beginning of the year. Gross domestic product (GDP) growth in Canada has recently outperformed that in the U.S. as well. The International Monetary Fund reports that Canada's growth in GDP from 2009 to 2010 outpaced the U.S. by nearly 2.0 percent.
Which brings us to an interesting question: Why has the recent past of these two countries, which share the longest border in the world, been so suddenly different after decades of lockstep growth? Canada's banking culture is more conservative Canada's economy was far less severely impacted by some of the financial pitfalls that plagued the U.S. While some U.S. banks took larger risks on investments, derivatives and subprime mortgages, Canada's financial institutions maintained a more conservative line. Stricter regulation created disincentives of fast and aggressive growth into new markets and, unlike U.S. banks' fierce national and international competition, Canada's few dominant market players were not forced to move into riskier obligations. As such, subprime lending was less prevalent and banks were lower leveraged (typically 18 to 1 in Canada compared with 26 to 1 in the U.S.). Canada borrows less and saves more Despite recent convergence, Canada has continued to attract a higher level of foreign direct investment (FDI) and personal savings while avoiding large government and trade deficits to support a nearly double national savings rate to the U.S. The International Monetary Fund estimates Canada's general government gross debt as a percentage of GDP to remain around 85 percent in 2011, where it has been for the past couple of years. In the U.S., this ratio has risen to nearly 100 percent. Commodities are surging Canada's enormous natural resources make up a large portion of the country's GDP. This includes energy in vast oil reserves and hydro power, timber, agriculture and minerals including uranium, gold, diamonds and zinc, to name a few. The prices for many of these natural resources have increased in recent years. This has led to a much stronger economic performance for the related value added industries as well. Extractive industries have been gaining a larger and larger share of the financial headlines as many marquee commodity products are sourced in Canada. Even largely sought after input commodities such as oil, lumber and aluminum have been outpaced by the attention of the local production of gold as a hedge against uncertain market conditions. Despite the recent growth, mining and agriculture still represent less than half of Canada's manufacturing sector as a proportion of GDP. Canadian dollar soaring, stunting manufacturing exports All of this relatively good economic news for Canada has also meant its currency has been gaining value. Since the beginning of 2011, the Canadian dollar has gained 5 percent against the U.S. dollar. This has wreaked havoc on Canadian manufacturers that have seen the competitiveness of their products erode over the past two years. One example of this is NewPage's recent announcement that it will close its Port Hawkesbury mill in September. Among other reasons, the company cited the unfavorable exchange rate as a major factor in the 49-year-old mill's lack of profitability. As a result, Canadian companies continue to look for export partners other than the U.S. for their vast array of natural resources. Case in point, Canada now exports a vast amount of harvested timber directly to China to support the heavy demand including the furniture industry, which has mostly relocated there. The epilogue As with all mature economies, no single economic factor or industry dominates the U.S./Canada story. With 70 percent of Canada's economy still service based, the commodity boom only impacts the margin of growth. The higher Canadian savings rate is a story of its continued macroeconomic fundamentals as much as a contrast in personal savings rates. Strict regulations and little market competition kept Canadian banks on a more conservative path leading to the crisis and have allowed them to avoid the retrenchment so common in U.S. and European competitors. Manufacturing, though hurt by the gain in the loonie, has benefitted from strategic bailouts by Canada and U.S. largess in the car industry. Unemployment, at 7.2 percent, seems buoyant compared to the stagnant U.S. and typically lower labor participation in Europe. As such, Canada has been rewarded with affirmations of its AAA rating, rapid rise of the Canadian currency and divergent growth path from the world's largest economy just next door. http://www.accuval.net/insights/featuredarticle/detail.php?ID=86
Foreigners spend $12.7B on Florida residential real estate in 2010 Canadians make up 39 percent of the international pool of buyers that spent $12.7 billion on residential real estate in Florida in 2010, according to a new report. Brazil's growing influence in the market is tied to 8 percent of purchases, according to data from the National Association of Realtors and Florida Realtors. The U.K. and Venezuela tied at 7 percent each, with Germany, France, Argentina, Colombia, Australia, Mexico and Spain driving the balance of buyers. In 2010, these international buyers generated $3.8 billion in sales in Miami/Miami Beach/Fort Lauderdale market alone, according to NAR. More than 86 percent of the Florida transactions involving international buyers are being completed in cash. The NAR report also highlights the fact that investors continue to drive a lot of sales activity. Only 12 percent of the foreign buyers plan to spend more than six months a year in their Florida properties, compared to 16 percent who plan to occupy their places for less than one month a year. A majority, some 56percent of the foreign buyers, plan to use their properties between two months and six months a year. For 23 percent of the foreign buyers, Florida real estate is perceived as a profitable investment, given the deeply discounted prices, rising rents in coastal markets such as in South Florida, and the weakness of the U.S. dollar, according to the NAR report. Overall, foreign buyers account for 26 percent of Florida's $48.8 billion in residential resales. Nationwide, foreign buyers account for only 3 percent of residential real estate transactions, according to the report. For foreign buyers focused on Florida, the top destination is South Florida. The Miami/Fort Lauderdale/Miami Beach market represents 30 percent of the estimated $12.7 billion foreign buyers spent on Florida real estate. The Orlando/Kissimmee market in Central Florida where Walt Disney World is located had the second-largest share of foreign buyers in the state, with a 14 percent share, or nearly $1.8 billion in sales. The Tampa/St. Petersburg/Clearwater market on Florida's west coast earned the No. 3 ranking, with an 11 percent share, or nearly $1.4 billion of sales. Rounding out the top 5 markets for foreign transactions are the deeply distressed Southwest Florida markets of Cape Coral/Fort Myers, with an 8 percent share, or $1.02 billion, and Naples/Marco Island, with a 6 percent share that equates to $762 million, according to the NAR report. The Miami/Fort Lauderdale/Miami Beach residential real estate market is being buoyed by foreign investors from Latin America, which account for 53 percent of the international buyers in South Florida.
Rosenberg sees Canadian cure to American ails If America's debt crisis is spreading like a lethal cancer, then the nation only has to look as far as Canada for a possible cure, says David Rosenberg, a chief economist with wealth management firm Gluskin Sheff + Associates. Rosenberg argues in a new article that Canada in the early 1990s faced a debt crisis similar to America's current economic woes. He says, the important thing is Canada is now back in the black after spending "years of painful austerity as taxes were raised, spending was cut," and apparently many government operations were privatized. Other high-dollar "untouchables like means testing and claw backs for social security were not just touched, but squeezed," Rosenberg writes. Canada now is doing well, Rosenberg argues. But, he says, America's northern neighbor hit its own debt wall nearly two decades ago as it faced deficits and debts that, much like America's current fiscal crisis, seemed "difficult to reverse." Canada even underwent its own version of a credit rating scare. In fact, it was more than a scare. Rosenberg says, "Canada endured not just the ignominy of credit downgrades but also recurring financial market gyrations that frequently disrupted business activity." The hero of Canada's tale of fiscal constraint and redemption is former finance minister Paul Martin, according to Rosenberg. Rosenberg says Martin "was so successful at turning the bloated deficit around, not to mention reversing Canada's long-standing reliance on big government, that he has since been hired as a consultant to the Cameron-led Coalition in the U.K." Rosenberg finishes his advocacy of Martin's turn-around-plan with an opinion that does not look favorably on America's current crop of top economic operators. "So if youâ™re wondering why it is that global financial markets have responded favorably to the financial plan unveiled by the U.K. government, now you know," he said. "Notice that Hank Paulson and Larry Summers werenâ™t offered any postings." www.housingwire.com/2011/05/26/rosenberg-sees-canadian-cure-to-american-ails
4 February 2011 Washington, D.C. Prime Minister Stephen Harper and U.S. President Barack Obama today issued a Declaration on a Shared Vision for Perimeter Security and Economic Competitiveness. The Declaration establishes a new long-term partnership that will accelerate the legitimate flows of people and goods between both countries, while strengthening security and economic competitiveness. The two leaders also announced the creation of a U.S.-Canada Regulatory Cooperation Council (RCC) and received the Second Report to Leaders on the U.S.-Canada Clean Energy Dialogue (CED). "This Declaration demonstrates the continued commitment of Canada and the United States to ensuring our common security, while supporting economic competitiveness, job creation and prosperity within a secure environment," said the Prime Minister. "It builds on the remarkable security partnership between Canada and the United States that has helped keep our borders open to legitimate trade and travellers, and closed to criminal and terrorist elements." The Declaration will focus on four areas of co-operation: addressing threats early; trade facilitation, economic growth and jobs; integrated cross-border law enforcement; and critical infrastructure and cyber-security. Canada and the U.S. will develop a joint action plan on perimeter security and economic competitiveness that will set out a range of initiatives in the four key areas to improve both countries' ability to manage security risks, while facilitating the flow of people, goods and services. A "Beyond the Border Working Group" composed of representatives from both governments will be established to implement and oversee work on the action plan. "The Canada-U.S. partnership on security and economic competitiveness must evolve continually if we are to stay strong and address future security and commercial concerns," added the Prime Minister. "This declaration sets the stage for more effective, long-term collaboration in these areas. It also respects the sovereignty of both countries and the privacy of our citizens." In addition to the Declaration, the two leaders also announced the creation of a United States-Canada Regulatory Cooperation Council (RCC) that will reduce red tape by making regulations in a range of sectors more compatible and less burdensome in both countries â" which is especially important for small businesses. "The review of these rules is an exceptional opportunity to break down regulatory barriers and prevent new ones from being introduced," added the Prime Minister. "The main goal is to make it easier for Canadian and American firms to do business on both sides of our shared border, leading to more jobs and growth in both Canada and the U.S." Increased regulatory co-operation between Canada and the U.S. is expected to generate economic opportunities on both sides of the border, while improving the ability of regulatory agencies in both countries to achieve their objectives. Prime Minister Harper and President Obama also received the Second Report to Leaders on the Clean Energy Dialogue (CED) which lays out progress achieved in 20 joint projects in such areas as solar energy, advanced biofuels, and carbon capture and storage. The purpose of the CED, which was announced in February 2009 by the two leaders, is to enhance collaboration between Canada and the U.S. on the development of clean energy technologies aimed at reducing greenhouse gases and combating climate change. For more information on these initiatives,
U.S.+Entrepreneurs=Risky Business It's not enough that the United States ends up as No. 4 on a new World Economic Forum survey of global competitiveness. Another study, also released today, finds that while the country remains one of the most entrepreneurial nations in the world, other countries are catching up or even surpassing us. That sobering finding comes from the Small Business Administration's Office of Advocacy, which released a study today comparing the U.S. with 70 other countries on entrepreneurial attitudes, activity, and aspirations. The U.S. ranked No. 3 overall, behind Denmark and Canada. We're still No. 1 in entrepreneurial aspirations - the degree to which entrepreneurial activity is directed toward innovation, high growth, and globalization. But we're only No. 6 in entrepreneurial attitudes - how the general population thinks about entrepreneurs, opportunity potential, and the risk of failure. And we've fallen to No. 8 in entrepreneurial activity, which this study defines as technology firms created to respond to business opportunities in a competitive environment. The relatively low score on entrepreneurial activity is "a surprise and a possible cause for concern," said study authors Zoltan Acs and Laszlo Szerb. Technology, which once powered entrepreneurial activity in the U.S., is now a "weak spot," the study concludes. "It is not just that the rest of the world has caught up, the United States seems to have abandoned this sector," Acs and Szerb write. Also, large companies account for an increasing share of business activity. "This had made it harder for new businesses to get started and for existing ones to prosper," the study concluded. The United States needs to encourage more startups in the tech sector and encourage more individuals to start firms with high-growth potential, the study concludes. The country scored poorly in the "gazelles" category - the fast-growing businesses that are responsible for most job growth. This study differs from the Global Entrepreneurship Monitor and other similar studies because it focuses on the quality, as well as quantity, of entrepreneurial activity in various countries. The development of innovative, high-growth businesses is more important than how many people are involved in starting or running a new business, the study's authors maintain. "The United States does not simply need more new businesses; it needs more highly productive ventures," the study concludes. Several reasons exist for the slowdown in U.S. high-tech entrepreneurship. The collapse of the dotcom bubble a decade ago made would-be entrepreneurs and their sources of capital more cautious. The reaction to the terrorist attacks of September 11, 2001, made the United States a less-welcoming place for skilled workers from other countries. Meanwhile, other countries, particularly Canada, New Zealand, and Australia "have been more pragmatic by giving strong incentives to attract educated, skilled workers to their shores—whether doctors, engineers, or academic researchers—and to keep them there with offers of residency and citizenship," the study notes. Plus, there's less cultural support for entrepreneurship that you'd expect in this land of the free. As America's population ages, it becomes more risk averse, the study found. Few young people view entrepreneurship as a good career option. The odds that the average American personally knows an entrepreneur "is no more likely than in a developing country," the study found. "Even though the presence of powerful role models and past successes make Americans have a keen desire to be entrepreneurial, the actual process is finding fewer takers than one would expect," the study concludes. Kent Hoover is the Washington bureau chief for bizjournals.
Despite BP spill, Florida tourism grows More than 20.8 million visitors came to Florida during the second quarter, according to estimates from Visit Florida, the state's official tourism marketing agency. That represents a 3.5 percent increase from the state's 20.1 million visitors during the same period last year. Domestic visitors increased by 2.4 percent, overseas visitors increased by 11.9 percent and Canadian visitors increased by 10.4 percent, compared to the same period in 2009.
Why Canada's Housing Market Didn't Crash They saw a housing boom, they saw a recession, and yet the Canadian housing market is still cooking with gas. Why? Fundamental differences in Canadian banking, borrowing and home buying. I spent the day in Toronto a few weeks ago and was really interested to see how a few miles can span such a huge difference in collective attitude. Lloyd Atkinson is an economist and also an empty nester, who just sold his large family home in Toronto and downsized to a condo overlooking the city. He sold his home in one day. "In the U.S., the whole idea of owning a home, there is almost a national obsession," Atkinson says. He knows because he's an American citizen as well. But he also knows that the banking system in Canada does not allow for the type of irresponsible buying and borrowing that we saw in the U.S. at the height of the recent housing boom (2004-2006). For one, there are just six big Canadian banks that own the bulk of the mortgage market, and they don't securitize and sell off loans at nearly the rate U.S. lenders do. They hold nearly three quarters of their loans on the books, and 80 percent of Canadian loans carry mortgage insurance. Canadian banks also had and have no such thing as the Alt-A, or low-doc, no doc loans that fueled bad borrowing and consequent defaults. At the height of the Canadian housing boom barely 5 percent of loans were considered "subprime," while a full third of U.S. loans were either subprime or Alt-A. "Nobody stopped a Canadian bank from lending in the subprime market, they chose not to," says CIBC's Benjamin Tal. "It was not the government, it was not monetary policy; there were no regulations whatsoever regarding how much you can lend in the subprime market. Canadian bankers decided not to do so, because it was too risky." Finally, the biggest difference is that if a Canadian borrower goes into foreclosure, the bank can and will come after that borrower's assets until the balance is repaid. There is no easy way to walk away. These are full recourse loans. Canada certainly sees ups and downs in its housing market, and all you need do is look at the downtown Toronto skyline to wonder if there isn't perhaps a Miami-like condo boom going on right now. But experts say the booms and busts are far more measured there. The condo buildings going up are all presold, and there is not nearly the speculative condo investment there that we saw in Miami. "There is an element of conservatism that runs right through the Canadian housing industry, from the banking, financing element, to the homebuilders and even in the resale of homes," says Phil Soper, CEO of Brookfield Real Estate Services - Royal LePage. "The innovation has safety valves." This cover of Toronto Life Magazine this month shouts, "$1.05 Million" with the subheading, "We're in a bubble. Now what?" Bubble it may be, and the air is coming out a bit now, but every one of the realtors, economists, and homeowners I interviewed said no way, no way would the Canadian housing market crash as the U.S. market did. Benjamin Tal put it best: "This was not a made in Canada, this was a made in the U.S. recession, and in many ways Canada was a second hand smoker here." © 2010 CNBC, Inc. All Rights Reserved
Competitive Alternatives 2010 – Special Report: Focus on Tax This report is a supplement to the 2010 edition of Competitive Alternatives, KPMG's guide to international business costs. It assesses the general tax competitiveness of the 95 cities in 10 countries studied in the main research project, focusing on 41 major cities. The 10 countries are Australia, Canada, France, Germany, Italy, Japan, Mexico, the Netherlands, the United Kingdom, and the United States. To this end, this report compares the total tax burden faced by companies in each country and city, including: • Corporate income taxes • Capital taxes • Sales taxes • Property taxes • Miscellaneous local business taxes • Statutory labor costs (i.e., statutory plan costs and other wage-based taxes). Total tax costs are compared between countries and cities using a Total Tax Index (TTI) for each location. The TTI is a measure of the total taxes paid by corporations in a particular location, expressed as a percentage of total taxes paid by corporations in the US. Thus, the United States has a TTI of 100.0, which represents the benchmark against which the other countries and cities are scored. The three major tax components analyzed in this study are as follows: • Corporate income tax (CIT): Companies are assumed to have a standard level of net income before income tax, in US$, in all locations. In this way, the amount of income tax paid can be compared among locations both in absolute dollars and as effective rates. • Other corporate taxes (OCT): Other corporate taxes include capital taxes, sales taxes, property taxes, and miscellaneous business taxes. These taxes are based on actual business costs that would be incurred by each business in each location. • Statutory labor costs (SLC): These costs include both statutory plan costs and other wage-based taxes. Tax rates used in this study are those in effect as at January 1, 2010.
Rank | Large International Cities | Total Tax Index 1 Vancouver, CA 50.5 2 Monterrey, MX 59.8 3 Mexico City, MX 60.0 4 Montreal, CA 60.3 5 Toronto, CA 67.6 6 The Hague, NL 76.1 7 Amsterdam, NL 76.7 8 Manchester, UK 77.4 9 Melbourne, AU 78.9 10 Baltimore, US 81.8
Study: Floridians still love Florida Despite the worst economy in their lifetimes, most Floridians believe their home state is a good place to live and are welcoming those out of state to become their neighbors, according to a study by Leadership Florida and the Nielsen Co. The 2010 Sunshine State Survey noted that for the first time in the survey's history, the majority (60 percent) of Floridians said that new people moving to Florida is more positive than negative and would advise a friend or relative to move to the Sunshine State. Positive responses were up 10 percentage points from the previous poll. Still, Florida adults remain focused on the economy and jobs at more than twice the intensity of 2006 and 2007. With Floridians out of work now more than ever in the state's modern history, the survey found a 85 percent disapproval rating of the state government's effectiveness in creating jobs. However, the survey also found residents understood the need to invest in economic development and 69 percent favor giving incentives to businesses to encourage them to expand or relocate to Florida. When asked what trait is most important for a leader to have, nearly 50 percent said "integrity." This marks the fourth survey, going back to 2006, where Floridians reveal a snapshot of how they perceive everything from the economy to quality of life issues. "In spite of the difficult economic times, Floridians are upbeat about their state and are glad to be here," said Carol S. Weissert, LeRoy Collins Eminent Scholar and Professor of Political Science at Florida State University. "A major finding is that three of every four survey respondents see a bright future ahead – a substantial increase over views expressed only one year ago." Amid a backdrop of more than two years of bad economic news, 62 percent of residents still believe that Florida is the same as or a better place to live now than it was five years ago. Looking toward the future, 75 percent said it will be better or the same five years from now — up from 63 percent in late 2008. Of the more than 17 percent who said that they are seriously considering moving out of Florida, about 37 percent cited lack of jobs or economic opportunities as the No. 1 reason. (Source: American City Business Journals Inc.)
Canada, By a Long Shot Just as Canada's gold medal hockey team swept aside the U.S. at the Olympics, its banks have emerged from the credit crisis as word-class leaders. Here are some lessons from its success. Only two weeks before this year's Superbowl showdown between the Indianapolis Colts and the New Orleans Saints, the Miami Gardens, Florida, stadium in which the two NFL teams were scheduled to play got a name change. Down came the signs identifying the home of the Miami Dolphins as the Joe Robbie Stadium; up went those proclaiming its new identity as Sun Life Stadium. The change was the latest salvo in a months-long advertising campaign aimed at reassuring insurance customers that Sun Life, unlike other major financial institutions, is a healthy company: The ads comment, pointedly, that the firm has been around for 145 years without falling victim to any financial bust cycle, and that it hasn't taken any bailout money at all. What the ads don't mention is that Sun Life, which is seizing on the weakness and poor image of firms like AIG in the insurance market, is a Canadian company, that country's third-largest insurer, and a major player in the U.S., European, and Asian insurance markets as well. American legislators may have forcefully rejected Canada's single-payer system as a model for health care reform south of the world's longest undefended border. But as financial reform takes health care's place at the top of the White House's "to do" list, perhaps there are lessons that can be learned from Canada's financial sector, one that is dominated by giant banking and insurance institutions of the type now deemed "too big to fail." They are big—but also profitable (with Canada's six largest banks earning $15 billion in profits during their 2009 fiscal year)—and yet remain ranked as the most sound in the world by the World Economic Forum. While the competition for that title may be significantly less intense than it was a few years ago, the fact remains that Canadian financial institutions seem to have left the party long after former Citigroup CEO Chuck Prince insisted publicly that as long as the music was playing, his firm had to keep dancing. To Paul Krugman, Canada's banking system is something to emulate, as he spelled out in the pages of the New York Times in early February. "It's not that Canada's banks are unique or uniquely good," Bill Downe, CEO of Bank of Montreal, tells StreetWise. "But the fact that Canada is dominated by the universal bank model, with a focus on our customers, and with a strong regulator that is supportive of that focus, helped us come through the events of 2007, 2008, and 2009. No nation can claim a lock on good culture, but maybe there is something our experience can bring to the debate." So what is it about the Canadian system that those of us in the United States might want to pay attention to? StreetWise offers five differences that have ended up strengthening our neighbor to the north: 1. You're allowed to buy a home, but you're not entitled to buy a home. In the United States, the ability to deduct most mortgage interest payments against income tax liabilities not only deprives the government of revenue, but makes it far too economically enticing for everyone to own their own home. That may be good social policy in the short run, but, as Tom Caldwell, a Toronto financier and a major shareholder of the New York Stock Exchange, points out, it's bad for homeowners and financial institutions alike. "That kind of policy puts tremendous pressure on the banking system to make subprime loans, and it's those loans that ended up as the trigger for the financial crisis," Caldwell says. In contrast, the subprime sector is a tiny part of the mortgage market in Canada, where mortgage interest isn't tax deductible and where there is less social stigma attached to renting a home. And far from prodding the financial institutions to make riskier loans more readily available, the Canadian government requires the home buyer to pay more for their loan, in the form of mortgage insurance provided, in most cases, through a government agency. Instead of encouraging risky mortgage lending, the government policy appears to be to curtail and manage it. Canadian banks also ended up keeping more of their mortgages on their own books, rather than repackaging them into CDOs, toxic or otherwise, notes Downe. 2. A single regulator with a focus on the health of the system. When did you last hear a bank or investment bank or insurer say warm and fuzzy things about the SEC, the OCC, the Fed, the FDIC—at least when they are behind closed doors? Canadian financial institutions may not love their regulator (and it's primarily just one regulator—the Office of the Superintendent of Financial Institutions, or OSFI) but where their U.S. counterparts grumble under their breath about regulatory burdens, Canadians admit, both publicly and privately, to being grateful for having a single systemic regulator. "It has a much broader vantage point," says Jon Boscia, president of Sun Life Financial. "It doesn't limit itself to looking at what we do here in Canada; they send people to Asia to see what we're up to on site there and do an in-depth review. I don't see that effort to get a complete oversight of firmwide systemic risk in other jurisdictions, and these days when so many financial institutions are multinational, it seems vital to me." In the spring of 2009, the U.S. Treasury Department made a big fuss over stress-testing many of the largest and most systemically important financial institutions; that kind of stress test, Boscia says, was routine in the Canadian regulatory regime, along with attention to the quality of the firm's balance sheet and its capital adequacy levels. "They were paying attention to liquidity positions long before that was a market issue," Boscia says of OSFI. 3. Banking is boring—and it requires discipline. The first half of this has become almost a cliché in recent months, but it's what enabled the Canadian banks to ride out the storm. Their focus is on the plain vanilla businesses of retail and commercial banking that—thanks to the oligopolistic structure of the Canadian banking industry—remains lucrative and a source of stable profits even in times of crisis. The Canadian oligopoly is the result of decades of policy and business decisions, and isn't likely to be replicable in the United States, even if policymakers feel that would be desirable. But there are still lessons to be gleaned from thinking about the financial system as something that should be an essentially boring business. "What banking should be is 3-6-3: pay 3 percent for money, lend it out at 6 percent and go home at 3 p.m.," quips Caldwell, who has witnessed many of the excesses of the freewheeling American system firsthand over the last 35 years. "The financial system is too important to us all to treat it as a source of excitement, short-term profits, and fancy innovations." Canadian banks weren't immune to the excitement of the last few years, of course. Ohad Lederer, a Toronto-based analyst at Veritas Financial, points out that Royal Bank of Canada took write-downs on subprime CDOs that it had on its balance sheet, while Bank of Montreal, like Citigroup, had offshore SIVs (structured investment vehicles) that fell victim to the liquidity crunch. "Canadian banks may have had many similar businesses, but they were in such small doses that it wasn't enough to do much damage to their long-term stability," Lederer says. One investment manager, who knows several of Canadian bank CEOs, says the decisions to limit their exposure to these riskier but more profitable new businesses was a combination of risk aversion, a focus on long-term risk-adjusted returns and not just quarterly profits, and OSFI's regulators peering over their shoulders. "An OSFI guy might ask a question about proprietary trading or something, and the in-house risk manager would say, 'Yeah, maybe that's not such a good thing to put any more capital into,' given what's going on in other institutions and throughout the system," this manager says. "This mix of things made them think beyond their personal and short-term interests, and that's what seems to have been missing within a Citigroup, for instance." For his part, Bank of Montreal's Downe says that running a universal bank—one that provides everything from retail deposit accounts to exotic derivatives to every possible kind of client—imposes a kind of discipline. Relying too much on any business segment—however profitable—undermines the benefits of diversification. "It can call into question the stability of the business as a whole, our commitment to our other customers, or even the balance sheet structures," he says. Moreover, he adds, everyone at the bank has a responsibility to continually ask themselves whether a particular strategy, new product, or source of business makes sense. "Judgment decides at what price the risk is simply not worth it." Sun Life's Boscia says Canada's accounting rules also helped by forcing financial institutions to take a hard look on the real value of new business divisions. "We are required to evaluate them on a longer-term risk-adjusted return basis, not just on what they can generate in profits this quarter or this year," he says. "It means we have to have discipline." 4. Regulation isn't evil. In the United States, the public and the financial industry have an almost bipolar relationship with the idea and the reality of regulation. When times are good, everyone just wants to be left alone to enjoy the boom. When the party comes to a sudden end, the pleas for government assistance multiply even more rapidly than rabbits, whether it's a Lehman Brothers executive wondering why his firm didn't get a bailout, or a homeowner griping about why the banks got TARP money while he is left to struggle alone with a mortgage that he can't afford. In Canada, there is a lot more consistency. "Both sides of political spectrum happy to leave the system operating without fundamental changes," says Lederer. When two big banks wanted to merge, regulators and legislators said no. When large banks wanted to sell insurance, the answer was also no. Not for Canada the big swings in the financial system's core structure, as seen in the repeal of the 1934 Glass-Steagall act that mandated the separation of commercial and investment banking. "There is a balance in Canada that is in place, that works, and that no one really wants to upset. And one reason it's possible to have big, dominant banks here is that the government isn't afraid to impose strong rules, or to enforce them." 5. It's all about the customer. Bank of Montreal's Downe argues that the biggest reason for the Canadian financial sector's resilience—as well as the strength of some of the stronger U.S. banks—is due to the degree that they focused on their customer as well as their bottom line. "In some more specialized firms, as they broadened their range of activities beyond simply being an agent, and up as a principal, they didn't have the skills to think about that." Coming from a background in commercial lending, Downe points out that he never saw the only exit strategy for a loan as being its sale in the market, so when liquidity in that market dried up, he was left with other options that other institutions didn't have. "With a focus on our customers, we knew our other options were to hold the loan to maturity or, if that customer wasn't solvent, we had collateral that we could seize instead." An investment bank acting as a principal rather than holding a loan as part of a service to a banking client didn't have those options. That's the kind of comment that is being heard more frequently—if still off the record—by some U.S. bankers as well as their critics. "We forgot about our end customers, that at the end of the day we were there to serve them," says one former investment banker. "Maybe if that's something the Canadian system retained, it's something we can remind ourselves about. After all, that's the reason we all got bailed out. No one wanted to leave 300 million plus Americans with no banking network." But if Bill Downe has one message to deliver to Congress about financial reform, it has nothing to do with the Canadian experience per se. Rather, it's about the urgency of the discussion. This isn't something, in his view, that Congress can afford to string out for another year or so. "What is needed is a good set of rules, backed up by a discussion of the principles that underlie them so that when there's a question about one of those rules, everyone has an understanding of the reason it was put in place." And it's time to start talking about those specifics now, he argues, before the debate can become polarized at the conceptual level, as happened with health care. "Getting a new set of U.S. regulations in place is a critical precondition to us having a global discussion around the issue of capital levels, which is the vital issue," Downe says. What matters is getting those new rules and ideas in place, not their country of origin. It's when the debate shifts to the global forum, he says, that Canada may be able to play a leading role.
The Global Information Technology Report 2009-2010 The report highlights the key role of ICT (information and communication technologies) as an enabler of a more economically, environmentally and socially sustainable world. Sweden tops the rankings of The Global Information Technology Report 2009-2010, released today for the ninth consecutive year by the World Economic Forum. Sweden is followed by Singapore and Denmark, which was in the number one position for the last three years. Switzerland (4), the United States (5) and the other Nordic countries together with the Canada, Hong Kong and the Netherlands complete the top 10. With an extensive coverage of 133 economies worldwide, the report remains the world's most comprehensive and authoritative international assessment of the impact of ICT on the development process and the competitiveness of nations. The report is produced by the World Economic Forum in cooperation with INSEAD, the leading international business school, within the framework of the World Economic Forum's Global Competitiveness Network and the Industry Partnership Programme for Information Technology and Telecommunications Industries. The Networked Readiness Index 2009–2010 www.weforum.org/en/initiatives/gcp/Global%20Information%20Technology%20Report/index.htm
Venture capital finally gets a break In a tax "master stroke," the Canadian government has just announced proposed legislation in its 2010 budget that would remove the "Section 116" barrier to the flow of international investment capital to Canadian technology companies. The new legislation will remove formidable administrative and economic burdens that have hampered the flow of potentially hundreds of millions of dollars in capital that is critically needed by Canadian technology companies. This change could alter the future of Canadian innovation. In the past, Section 116 had required international investors -- the vast majority of whom were already exempt from federal taxes on the sale of Canadian investments under Canada's broad network of tax treaties -- to go through burdensome administrative hurdles before funds could freely flow to them. Documentation was required for every investor in a foreign venture capital fund, and many funds have hundreds of investors. A single sale could involve preparing and filing hundreds of pages of documents and signatures, including tax returns, even though invariably no taxes were due. This process often translated into months of delay, significant costs and sometimes major financial loss for the international investor. The new legislation will eliminate all these bureaucratic hurdles, making it easy for international investment capital to invest in Canadian technology companies. The likely results for Canada's innovation industries and economy are extremely promising: * Canada's emerging technology companies will now have access to deep pools of international capital and the vast global customer markets to which those pools are connected. It's important to remember that the Section 116 problem was not one of the Harper government's making. It was inherited. The Canadian government deserves high praise for taking this unprecedented action to fix it. Yet there is much work still to be done to put the Canadian venture capital industry back on its feet. Without doubt, 2009 was the worst year since the mid-1990s for venture capital investing in Canada and for fundraising by its venture capital firms. There is a need for the government to consider additional steps to resuscitate the venture capital industry. These may include expanding and liberalizing tax credits for emerging technology companies, as well as creating innovative incentives for institutional investors and individuals to invest in VC firms and for angel investors to invest in seed financings. In the short run and on at least a temporary basis, government may have to further intervene as an investor-catalyst to help jump-start the VC industry. But there is now light at the end of the tunnel, and we are closer to turning the corner than we've been before. Given Canada's highly educated population, world-class universities and research centres, major outlays of R&D, and proximity to the huge U.S. market, Canada has the potential in its technology and innovation to pack a global punch well beyond the relatively small size of its population and GDP. If the Harper government continues to make the right moves to bolster the VC industry in the bold and innovative way it did with Section 116, it could earn its place in history. It would be remembered as the government that set the stage for a truly dazzling global future for Canadian innovation and positioned Canada to blow the socks off the rest of the world. -Stephen A. Hurwitz, a partner in the law firm of Choate Hall & Stewart LLP, Boston, specializes in Canada-U. S. cross-border transactions involving venture capital, private equity and technology companies. He is co-founder and chairman of the Quebec City Conference, a leading international VC, PE and LP conference.
You can trust us most: survey If trust, or reputation, were Olympic events, Canada's businesses and financial institutions
would win gold medals, according to the authoritative 2010 Edelman Trust Barometer, an annual survey of global trustworthiness. Edelman is the world's largest independent public
relations firm, and the Barometer canvassed the views of 4,875 well-educated people from 22 countries last fall. Click Here To Go To The NEWS ARCHIVES Page 
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