What was Canada's response to the 2008 financial crisis?

Prime Minister Stephen Harper's Conservative government responded to the 2008 global financial crisis with the Economic Action Plan announced in the January 27, 2009 federal budget. The Plan provided about 47 billion dollars in stimulus spending over two years (2009 to 2011), including infrastructure investments, tax cuts, extended employment insurance, and direct support for the auto industry. Canada's strong banking regulation (no Canadian bank required a bailout) and rapid stimulus produced one of the strongest G7 recoveries from the Great Recession.

The 2008 financial crisis began with the September 15, 2008 collapse of Lehman Brothers in the United States, which triggered a global liquidity crisis. The subprime mortgage failures, derivatives-market collapses, and bank failures spread from the US into Europe and other industrialised economies. By early 2009, global GDP was contracting, world trade had fallen sharply, and unemployment was rising rapidly. Canadian GDP contracted about 3.3 per cent during the recession (October 2008 to May 2009), the smallest G7 contraction. Canadian unemployment rose from 6.0 per cent in October 2008 to 8.7 per cent in August 2009, then began declining.

Several factors made Canadian banks particularly resilient. Office of the Superintendent of Financial Institutions regulation since 1987 had imposed strict leverage limits (Tier 1 capital requirements that often exceeded international norms). The 1990s elimination of the merger of the Royal Bank with the Bank of Montreal and the merger of CIBC with the Toronto-Dominion Bank had kept the Big Six banks (Royal Bank, TD, BMO, Scotia, CIBC, National) at moderate sizes. The Canadian Mortgage and Housing Corporation's mortgage insurance reduced Canadian banks' direct subprime exposure. Canadian banks held lower levels of complex derivatives. The 2008 World Economic Forum named the Canadian banking system the soundest in the world.

The Economic Action Plan was announced on January 27, 2009 in the federal budget delivered by Finance Minister Jim Flaherty. The Plan committed about 47 billion dollars over two years, plus another 12 billion dollars in tax measures and provincial-federal cost-sharing. Major elements included: 11.8 billion dollars in personal income tax reductions (mostly through the Working Income Tax Benefit and other programmes); 4 billion dollars in business tax cuts; 12 billion dollars in infrastructure spending (the Building Canada Plan); 7.8 billion dollars for Canadian Mortgage and Housing programmes; and the General Motors and Chrysler bailouts (the federal and Ontario governments contributed about 13.7 billion dollars to GM and Chrysler restructuring in summer 2009, of which about 9.5 billion dollars was eventually recovered). Federal deficits reached 56 billion dollars in 2009 to 2010 (about 3.6 per cent of GDP). The federal budget returned to surplus in 2014 to 2015 under Harper's last government. Canada's banks emerged strengthened and Canadian recovery was faster than any G7 country except Germany.