Some say it was good luck, others say it was good management that helped the Canadian banking industry slip through the jaws of global economic meltdown relatively unhurt.

If you chalk it up to our sound banking system, think again. Experts say it is far from worthy of being an international role model.

“I’m a little more skeptical that Canada is the perfect role model in the financial architecture,” said Matthew Richardson, Charles Simon Professor of Applied Financial Economics in the finance department at the NYU Stern School of Business.

Richardson was one of three panellists debating the issue at the second annual edition of The Canada Forum, a series of workshops spread over two days, organized by Euromoney Conferences.

As much as it sounds like the world begrudging our success, Richardson has a point. Or two.

“One [reason] is Canada wasn’t exposed to U.S. mortgage related assets; and I think you could give some credit to the architecture of the Canadian system,” said Richardson.

“The second reason, where I think a little bit of Canada not [being] such a role model, is that Canada, like Australia and a few other countries, didn’t really have the large declines in real estate, and, therefore, the large declines in mortgage values that other countries have gone through.”

In other words, the large shock that exposed cracks in the banking system in the U.S., Britain, and some European economies, never took place in Canada in the first place.

“When you look at a banking system like Canada’s, which is basically highly concentrated [with] just a few firms, [and] if one of them fails, it would impose systemic risk on the entire economy. I think you have to be a little bit worried about the aggregate asset exposure,” said Richardson.

John Kirton, director of G8 Research Group, takes a diametrically opposed stance on the debate. Kirton naturally thinks we’re playing a leadership role in recasting the international financial architecture.

“Certainly it’s been at the centre of dealing with the reconstitution of the global financial architecture and the weight of the current global financial crisis, as it was in previous ones, back in 1997 to 1999,” said Kirton.

His view finds a staunch subscriber in Donald Hathaway, interim chief executive officer, Global Risk Institute (GRI).

“Our role in recasting architecture internationally is pretty well known,” said Hathaway. “I think our role is both a leadership one, and to a certain extent, we’ve been a bit of a model, because we were quite fortunate in coming through the economic crisis rather well. And it is truly meant to be global, not just examining Canadian issues, because, after all, financial services is a global system.”

He warns against looking too long into the rear-view mirror, though, and insists not knowing what lies ahead is the real problem. “Of course it will happen again,” said Hathaway. “Our job is to make sure that we reduce the probability of it, and when it does happen, we’re more flexible in the face of it.”

Richardson wants the banking system to prepare for the worst and suggests stress test as the first step to developing an ex-ante assessment of the impact of a systemic shock.

“You have to assume we are hit by a systemic event, whether it’s real estate or commercial loans, or sovereign debt, or something else. And you have to look at the conditions under which your banking sector behaves in that environment.”

Andrew Fleming, senior partner, Ogilvy Renault, agrees. “We shouldn’t be focusing so much on how to avoid the next crisis, but on coping with the next crisis in a manner which doesn’t bring the system down.”

A debate on the Canadian banking system rarely concludes without someone broaching the issue of regulation. So when the moderator asked if Canada has enough regulation in place, Fleming wasted little time in saying “probably too much.”

“The Canadian banking system has been very risk averse for centuries, at least decades,” said Fleming. “And the regulators help that along.”

He pointed out it was in 1966 that a Canadian bank would write a mortgage for the first time. “Prior to that it was considered too risky for banks to do; we’ve got a real history here of having had very low risk.”

It’s not so much a question of having enough regulation, he said, as of having a system which can implement the regulations that exist.

Never far behind the talk of regulation is the contentious matter of the national regulator, or rather the lack thereof. “As long as we have a provincial securities system, it’s very difficult to be a role model,” said Fleming. “If you have to send 13 representatives to the IOSCO [the International Organization of Securities Commissions] meetings, there’s a certain amount of disbelief in the minds of others.”

But it’s not the lack of a national watchdog that poses the biggest threat to international architecture and to Canada. “The two biggest risks in the world are the interconnectedness and the increasing degree of interconnectedness amongst financial systems,” said Hathaway.

Canada, therefore, should not necessarily believe its own press, warns Richardson. “The [Canadian] financial sector looks more alike than they think compared to other financial sectors.”

If the Canadian financial sector is exposed to a large shock it can run into issues like any other country, he added.