The fact Canada has done better than most countries amid the global financial crisis may simply be a reflection of a more conservative culture, suggests a new TD Economics report.

“In the midst of the recent global financial carnage, the Canadian banking system has weathered the storm far better than its international peers. Canada has not experienced the failure of any major financial institution. While financial losses were incurred and mistakes were made, as evidenced by the exposure of some Canadian firms to U.S. subprime paper, the degree of the losses experienced in Canada have paled in comparison to those recorded in the U.S. and European banking systems,” TD notes.

There are number of reasons why the Canadian financial system has fared better, TD suggests. “The most basic answer is that Canadian banks pursued more prudent and more disciplined risk-management practices,” it says, citing banks’ solid capital ratios, more conservative lending practices, risk management culture, and regulatory oversight. It also points to more risk averse behaviour by households, and the fact that the major Canadian investment banks are part of larger diversified financial institutions.

“The practices in Canada stand in sharp contrast to those in the U.S., Europe and elsewhere. It is more difficult to pinpoint why. Why has the regulatory environment been tougher in Canada? Why have Canadian banks had tougher risk management cultures? Why have Canadian households chosen to taken on less leverage? All of these aspects likely intertwine in a virtuous circle,” TD concludes. “There appears to be a more risk adverse culture in Canada running through government, the public and banks. One feeds off another.”

It also speculates that it may be significant that Canadian banking is dominated by a small number of large banks that have been in business for a very long time. “Perhaps this long history deters actions to boost short-term profits at the expense of long-term risk,” it speculates.