Essay On Canadian And US Financial Systems

The economies of Canada and the USA are the most developed ones in the whole American continent. The two nations have very intensive economic ties. Furthermore, the whole scope of relations between Canada and the USA is at such intensive level that these two countries will inevitably cooperate, and to understand the possible ways of the development of their economies we should figure out their current situation in financial sector.
Canada is a developed market economy with less government regulation than in Europe, but slightly higher than in the United States. Canada is a member of the Organization for Economic Cooperation and Development (OECD) and Group of Eight (G8). Over the past decade, the economy has grown significantly and reduction in unemployment, there is a surplus in the federal budget. Public finance system in Canada consists of the following main components: the Federal Budget; provincial budgets; budgets of local authorities; extrabudgetary funds; finance state enterprises. Canada's Federal Budget is formed mainly by personal income tax. Payers of this tax are individuals. In addition to income tax Canadians pay a tax increase of capital assets, which income is received from trading assets (real estate, securities, etc.). Another tax source of Federal Revenues are taxes on income of legal entities, which include corporate tax. Almost a quarter of Federal Revenues account for indirect taxes, the most important is sales tax.
Canada budget revenues by more than 90% are formed of tax revenues. In 2013, the bulk of the revenue to the state treasury of Canada is income tax from the citizens: 125.4 billion. The second and third place have respectively corporate tax (32.4 billion dollars) and the federal tax on goods and services GST (30,9 billion dollars). All government revenues coming to the Consolidated Fund, and all payments are made on the basis of regulations of Parliament. Based on fiscal federalism in Canada there is equalization of incomes between budgets because of the financial help lower budgets. Accordingly, the country used vertical financial equalization complex intergovernmental relations in Canada include: fixed taxes on certain links of the budget system; system of federal transfers to the provinces and the national co-financing programs. Expenditures from the federal budget in Canada include: social spending; governance; financial aid budgets of lower level; national defense (about 1% of GDP); the rule of law. Important in the formation of the budget policy in Canada is forecasting a budget. The Federal Government, provinces, cities and government agencies prepare medium budget plans and the majority of them also trains and long-term budget plans. These plans typically contain some forecasts for the current and capital budgets are based on a detailed economic forecast. Budget plan begins with a detailed demographic and economic forecast for the respective administrative-territorial unit. In Canada, this phase of work is usually performed by independent companies such as the Conference Board of Canada. Revenue forecasts are made on the basis of demographic and economic projections. Taxes on income are modeled basing on the income of individuals and companies, real estate taxes are modeled based on housing linked to demographics, direct taxes are modeled, based on consumption. The funds needed for debt service, modeled on the amount of debt and interest rate (fixed or floating). Canadian cities can only borrow for capital expenditures, and interest paid from their current budgets. The system of taxation in Canada is represented by three levels: federal (48% of government revenue), provincial (42%) and local (10%). A specific feature of the Canadian tax system is that the state requires taxes on any income, including illegal origin. The bulk of revenues constitute revenues from income tax and indirect taxes. Local incomes in Canada include: property tax, taxes on businesses, other taxes and fees. Special place in the Canadian financial system occupy finances of state enterprises, which form the share of revenues in the consolidated budget of the state system and special purpose funds. The state owns 90% of forest lands in Canada. The priority of the state is building new roads, power facilities, canals, ports and airfields. Among the large companies that are controlled by the Government companies that produce synthetic rubber and a monopoly in this field, the company on the development of uranium ores. Banks occupy a significant role in Canada's financial system and economic development. The banking system includes central banks of Canada, domestic banks and foreign banks. Banks own about 70% of the assets of the Canadian financial sector, with the largest domestic banks manage more than 90% of the assets of the entire banking industry. The main body that monitors the activities of financial institutions are the Bank of Canada, which is the Central Bank that maintains liquidity and financial institutions that are part of the financial system. Canadian capital market is one of the most developed in the world. It is characterized by large volumes of capital movements, high professionalism of members and a variety of financial instruments. Financial sustainability of Canada is due to the following factors: fierce legislative regulation of the banking system; tight fiscal policy of the country (currently Canada's net public debt 20% of GDP). Significant is the presence of special purpose funds, allowing funding important programs development. Extra-budgetary funds are as individual financial institutions and accordingly have broad authority to use cash. In developed countries, there is considerable government support programs and economic development of certain sectors of the national economy.
Within the framework of analysis of the actions of governments and central banks of different countries in dealing with the financial crisis during 2008-2009 we have the following. Canada has shown significant progress in this area. If we compare the impact of the crisis in the financial sector of the USA and Canada we see that Canada is almost painlessly out of this crisis. The US Government supported the financial sector in 2008-2009. It sent more than $ 1 trillion to the US. budget. Only in 2008 140 US banks were bankrupt, including international investment banks. In 2009 the US Federation Deposit Insurance (FDIC) has spent about $ 80 billion. The US owns to return deposits. Analysis of these sites "Bank of Canada", "Canada official site", Economic Institute, Brookings, periodicals "The Economist", "Financial times", "Mortgage Finance" and others allows us to draw conclusions about Canada. In recent years, Canada is the only country G7, in which there is a growing surplus in the state budget. Since 1997 the external debt decreased by $ 100 billion. None of the 21 banks in Canada has received support from the government. The World Economic Forum has recognized Canada's financial system is the most healthy and sustainable world in 2009. However, in the early 1990's Canada's financial situation was difficult. In 1993 the budget deficit exceeded 5% of GDP and public debt amounted to almost 100% of GDP. Due to the national program of privatization of these indicators improved significantly, allowing capital markets to expand and increase the efficiency of public enterprises. Banks play a key role in the economy of Canada. The banking sector of the country consists of 21 domestic banks, 23 foreign bank subsidiaries and 21 branches of foreign banks. Together, these institutions manage assets worth more than $ 1.8 trillion. Banks owned more than 70% of the assets of the Canadian financial sector. Thus 6 major Canadian banks have capital of more than 90% of the assets of the entire banking system. Canadian banks conduct their activities through a large network of over 8,000 branches and about 18,000 ATMs located all over the country. At the legislative level, the banks are strictly regulated. Since the early 1970's there was introduced a number of laws that regulate banking details, including the law of 1997 "On the management oversight of financial institutions." Central Bank of Canada is the Bank of Canada, which was established in 1935 as a private institution and nationalized in 1938. Its main objectives are to support the national currency and inflation at 1-3%. The main instrument of monetary policy is changing daily targeted refinancing. This rate indicates Canadian financial institutions in which the average interest rate the Bank of Canada encourages them to lend each other funds for one day. Changing daily target refinancing usually affects other interest rates, particularly in the mortgage and basic loan rate commercial banks. Fluctuations in these rates affect other interest rates and affect the external value of the Canadian dollar. In April 2009 the Bank of Canada has lowered the refinancing rate to 0.25%.
Currently, the US financial system has great influence on world financial sector more than any other national economy. The distinctive feature of the US financial system is that it developed on the basis of market principles by establishing its own institutions and related operation methods. One more unique feature of the US financial system is a tendency to increase the level of self-defined and relatively large number of financial instruments. Currently, the US financial system has reached record degree of development and became the fundamental basis of the economy that provides opportunity for dynamic development and overcoming the world financial crisis. The major elements of the US financial system are: the finances of the Federation, which includes the federal budget, special funds federal finance state enterprises; finances of states, which have their own budget, special funds and finance companies that are owned by the state; local finances, which include local governments finance public utilities, various funds. High level of autonomy is inherent for the US financial system at which each level of government independently establishes the taxes and budget policy with public finances redistributed through about a third of GDP. All the Government expenditures are allocated between the certain levels of the financial system in approximately the following proportions: the finances of the Federation accounted for 60%, the finances of states - 15% and local finances - 25%. National defense, some social protection programs, the cost of servicing the public debt on the economy, foreign relations, belong to those sectors which always are funded at the national level. The State Budget of the United States consists of government budget and trust funds. Due to government budget there is funding for national economy and social programs. Trust funds provide funding for infrastructure, and their revenues generated by income from the use of state property. Central government revenues are income taxes and dues are payable to social insurance funds. In toto these taxes provide almost 80% of state budget revenues. Tax revenues from business and private enterprises in the state budget of the USA can have the following basic types, such as: corporate income, excise duties (in the US they are considered as indirect taxes on business), customs duties and gift taxes, and real estate. The US corporate tax implemented on a progressive scale of 15%, 25% and 34% depending on the particular state may apply for additional rate of replenishment of local budgets. The US financial system consists of the following major components: financial institutions, financial markets and financial instruments. Financial institutions, such as banks, companies, firms and institutions whose activities are associated to the organization of the cash flow that acts as financial intermediary. The functions of supervision of financial institutions and markets carry special public authorities and institutions the most important of which are the Federal Reserve and the Commission for Securities and Stock Exchange. The key point of the financial system is the banking system, which carries out production and redistribution of money. The US Federal Reserve performs the role of the central bank that supervises banks and regulates their activity, issues money and ensures the stability of the financial system. The main function of the Federal Reserve is to be the bank of banks; commercial banks keep their cash deposits there and conduct mutual payments through transfers. Moreover, the Federal Reserve banks provides loans to banks, makes transactions in clearing system and controls the money supply of the country. The US banking system consists of two main types of banks: commercial and investment ones. The commercial banks are depository institutions main source of income whereof is the contributions and acts according to economic exchange payments. The two-thirds of US commercial banks are state banks operating according to the laws of a certain state within which they operate, the other banks operating in accordance with federal law and are national banks. The main activities of the US investment banks including trade securities underwriting and advising on mergers, acquisitions and investment. Their activities are supervised by the Securities and Stock Market. The US investment banks in financial policy to guarantee placement of securities in the primary market and act as brokers for clients in the secondary market. In addition to commercial banks the US financial institutions are: insurance companies, depository institutions, pension funds and other institutions that hold about 40% of financial assets, which are sent to production targets and play a key role in short-term capital market. The exchange plays very important role in the financial market of the USA. Commodities are exchanged there and the US carried out a large number of transactions on purchase and sale of securities and various goods. There is also a well-developed long-term and short-term capital markets in the USA. Real long-term debt capital market consists of government securities; the industrial market, and foreign government bonds; mortgage market; consumer lending. Short-term market includes cash, currency, financial and futures market. Domestic money market US is 40% of GDP, which significantly affects the economic growth. Trend growth issue treasury bills and government securities reflects increasing public deficit financing because the Federal Reserve funds market is an important short-term money market of the US. Special funds owned by the Government of the US operating as independent financial institutions occupy significant place in the public finance. The revenues of the funds generated from tax and non-tax revenues, also at the expense of the federal budget. The most significant of them are social insurance funds. The main national systems of social security and welfare insurance include old age, the survivor and health insurance. In addition, there is unemployment insurance, temporary disability, public assistance to the elderly, disabled and needy. In addition to this is pretty cut system of family allowances, which are partly funded by the federation, but are administered by state governments and local authorities. Also in the US, depending on the intended use are the following special funds: economic fund for the regulation of economic life, which include investment, market, fund restructuring and development; research funds used for financial support of scientific research; military and political foundations. Essential for the assessment of the US financial system are financial industrial corporations with assets of more than 2 times the expenditures of the federal budget. The high level of market institutions and instruments in the US economy with good government regulation ensures consistency and reliability of the dollar as world currency. Due to Government the most stable and secured global currency dollar actively used in international trade and financial transactions.
Thus we may conclude that the financial system of Canada is sustainable and competable with the US one.