Tara Perkins writes,

OSFI [Canada’s bank regulator] ranks Canadian financial institutions on a ladder according to its perception of how much trouble they might be. Those at the top–that list typically includes the Big Five banks–are the good kids who have their bedrooms in order and require minimal ongoing supervision. A team at OSFI will monitor their financial reports, meet with their officials and, once a year, report to the Minister of Finance on their health. Those at the bottom are disasters waiting to happen, and the regulator steps up its oversight accordingly.

…The U.S. system of bank oversight, in contrast, more closely resembles a group of babysitters who lay out dozens of rules and then watch–if the rules are broken, they bring out the punishments. This emphasis on rules has led to a concomitant focus on circumventing them

From Nick Rowe, who gives Scott Sumner several other interesting thoughts. Spotted by Tyler Cowen, who adds cynically that

If a Canadian investor wishes to take some risk, the New York-based banks may be the most efficient means of doing that.

Which could be because the U.S. regulatory system ensures a bailout of the risky investor more readily than the systems of other countries. I am guessing that is what Tyler is thinking is our source of comparative “advantage.”

In any case, back to the original quote, it gets to the distinction that I make between “letter of law” regulation and “spirit of law” regulation. I keep insisting that letter-of-the law regulation is bound to fail, because the natural impetus toward profit maximization will lead the banks to innovate in ways that are consistent with the letter of the law but violate its spirit.