Stories like this are the reason why banks need to be heavily regulated

Nothing like up here. Not even close.

Canada used to be the butt of banking jokes--if that's not an oxymoron. Our banks were (and are) run by a bunch of conservative, paternalistic Scots. After the meltdown of '08, we became a model of prudence in the international community for our regulatory environment.

And the BMO's of this world still manage to make a shitload of money despite the regulations.

 

Some negatives to the system:

<a href="http://baselinescenario.com/2010/03/25/the-canadian-banking-fallacy/">The Canadian Banking Fallacy</a>

 

One of the fundamental points of his argument is that Canadian banks had lower capital ratios than, say, JPMorgan. But the problem there is that capital ratios reflect two things: The amount of high-quality capital, the higher the better, but also the level of risk-weighted assets, the lower the better. And it's becoming increasingly clear in Europe, at least, that the calculation of risk-weighted assets is frought with peril, to put it nicely, and is pure smoke and mirrors, to put it not so nicely. (In other words: What's a risk-weighted asset? No one really knows. Who decides? The banks. Do they tell us how? HA!)

As with so many other things, the crux of the argument appears to be "This system isn't perfect, so we're better off sticking with ours."

And sure, Canadian banks might be backstopped by the government to a higher degree than U.S. counterparts. But that suggests to me that the government is going to be far less likely to sanction reckless behavior, given that the reckless behavior endangers its money.

 

Although you may not be able to get it in the context of that blog post, the author--former IMF chief economist-- is certainly not an apologist for the U.S. banking system. He has long advocated for breaking up the largest financial institutions.

 

Which is not to discount the rest of your post, because you certainly have good points. Think of all the crappy assets rated AAA before the financial crisis. And risk-weighting just encourages financial institutions to move into assets that are most risky relative to the capital holding they require.

 

Not a sweet grandmother, but fees are typically lower and service is better. I sit on the board of a very small credit union and we're more concerned with maximizing dividends and offering new products than jacking up fees. I'm sure even the bigger credit unions aren't as flexible, but on a small level when our members know us by name and see us in the grocery store, it's bad business to slap some bullshit fee on someone.