The Bank of Canada has just released a research paper authored by Fuchun Li in which Li argues for a new kind of “stress test” to see how Canadian banks are faring under the current fiscal crisis and compares that result to how they fared under earlier fiscal crises. Li is an employee of the bank, working in its “Financial Stability” department. From the paper's abstract, here's what he has to say:
First, compared to recent financial crises, including the 1987 U.S. stock market crash, 1994 Mexican peso crisis, and 1997 East Asian crisis, the ongoing 2007 subprime crisis has been having more persistent and stronger contagion impacts on the Canadian banking system. Second, the October 1997 East Asian crisis induced contagion in Asian countries, and it quickly spread to Latin American and G-7 countries. The contagion from the East Asian crisis to the Canadian banking system was not as strong or as persistent as that of the ongoing subprime crisis. However, it had a stronger impact on emerging markets. Third, there is no evidence of contagion from the 1994 Mexican peso crisis to the Canadian banking system. Contagion from that crisis occurred in Argentina, Brazil, and Chile, but the contagion effects of that crisis were limited to the Latin American region.