The worldwide financial system has been "pushed to the brink" in its most severe downturn since the Great Depression, although the actions of American policy-makers have averted disaster, the head of Canada's largest bank said Friday.

"Not since the [Second World War] has the financial system itself been in such a state of dysfunction," Royal Bank chief executive Gordon Nixon told a roundtable of prominent business leaders in Calgary.

Royal Bank CEO Gordon Nixon, shown above in 2007, said Friday in Calgary that the global financial system is in 'a state of dysfunction.' (Adrian Wyld/Canadian Press)

However, Nixon said "decisive actions" such as the bailout of investment bank Bear Stearns, which was bought by JPMorgan in a deal orchestrated by the U.S. central bank, prevented a potentially disastrous ripple effect from taking place.

Scotiabank CEO Richard Waugh said regulators in Canada have also played an important role in stemming the effects of the credit crisis.

Because regulators set such a high bar for bank capitalization ahead of the unravelling of credit markets, Canadian banks went into the storm in relatively good shape, Waugh said.

But there are some things that the financial institutions themselves can do better in the future, he added.

"We are accountable and we've got to do something about it," Waugh said.

For instance, he said "terrible things happen" when liquidity is not priced properly — in other words, when it's too easy to borrow money at low interest rates or sell equity at high prices.

The chairman of Deutsche Bank, Josef Ackermann, said there is reason to be optimistic in the current economic gloom.

While financial markets remain "volatile and fragile," the underlying economic environment is "relatively benign," Ackermann said.

Bank writedowns related to the credit crunch are continuing but investment and clients are beginning to return to the industry, he said.

While challenges remain, the "market is not dead," Ackermann said.