Banking in Canada

Banking in Canada is one of Canada's most important industries with several banks being among its largest and most profitable companies.

The towers at Bay and King Street in Toronto are home to four of Canada's five largest banks.
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It is dominated by a small number of large banks, with the six largest combining for 90% of the market share.[1] The two largest, the Royal Bank of Canada and the Toronto Dominion Bank are among the world's 25 largest banks.[2] It is widely considered one of the safest banking systems in the world, and avoided major problems in the Financial crisis of 2007–2008.[3]

Canada's banks have high service levels and investments in technology. A report released by the office of the Minister of Finance in 2002 states "Canada has the highest number of ATMs per capita in the world and benefits from the highest penetration levels of electronic channels such as debit cards, Internet banking and telephone banking".[4] More recent data published by the World Bank shows that as of 2017 Canada has 227.82 ATMs per 100,000 adults, which ranks the country third worldwide.[5]

The core criticism of Canada's banking sector is that it is an oligopoly with limited competition and higher prices for Canadian consumers.[6]

History

Origins
Main article: Early Canadian banking system
View of a Scotiabank facade in Amherst, Nova Scotia. This structure was erected in 1907.

Banking in Canada began to migrate in earnest from colonial overseas banking operations to a local banking system with the founding of the Bank of Montreal in 1817.[7] Other banks soon followed and began business, and after a lengthy approval process began unregulated banking business. These institutions issued their own local bank notes as currency. However throughout the 1850s and early 1860s a number of bank failures caused a loss of confidence in bank notes. The passing of The Provincial Notes Act in 1866[8] allowed federal and provincial governments to begin to introduce their own notes. With the Canadian Confederation taking place in 1867, the new Dominion government gained complete control over currency and banking.[8] In 1871 the federal government passed the Bank Act which started the process of bringing all charted banks in the country under common regulation. The establishment of the Bank of Canada in 1935[9] was also an important milestone in banking and monetary governance.

The Canadian banking system has long been regarded by industry experts to be one of the strongest and most stable banking systems in the world.[10][11][12] This is shown by Bank of Montreal paying dividends to share holders every year since 1829 (192 years ago),[13] Scotiabank since 1833 (188 years ago),[13] Toronto-Dominion Bank since 1857 (164 years ago),[14] Canadian Imperial Bank of Commerce since 1868 (153 years ago)[15] and Royal Bank of Canada since 1870 (151 years ago)[16] respectively.

In Canada, only two small regional banks have failed since 1923 when the Home Bank of Canada failed. This was both Canadian Commercial Bank and Northland Bank in September of 1985.[17] To put this into perspective there were no bank failures in Canada during the Great Depression, World War II, the 1979 Energy Crisis, the Dot-com Bubble, the Sept 11th Attacks or the Subprime Mortgage Crisis.

Recent history

In the 1980s and 1990s, the largest banks acquired almost all significant trust and brokerage companies in Canada. They also started their own mutual fund and insurance businesses. As a result, Canadian banks broadened out to become supermarkets of financial services.

After large bank mergers were ruled out by the federal government, some Canadian banks turned to international expansion, particularly in various U.S. markets such as banking and brokerage.

Two other notable developments in Canadian banking were the launch of ING Bank of Canada (which relies mostly on a branchless banking model), and the slow emergence of non-bank mortgage origination companies.

A survey conducted by the World Economic Forum called the Global Competitiveness Report of twelve-thousand corporate executives, in 2008, concluded that Canada has the best banking system in the world, receiving a score of 6.8 out of possible seven.[18]

Between July and September 2016, three new domestic Schedule 1 banks (Wealth One Bank of Canada, Exchange Bank of Canada, and UNI Financial Corp) have begun operating in Canada with an additional fourth bank poised to announce its commencement in the following month. When the fourth bank begins operations (Impak Finance Inc), it will be almost a 15% increase in domestic banks from 27 to 31. The new banks have identified niches compared to the wider reach of the "Big Five". Wealth One Bank of Canada aims to service the country's growing Chinese Canadian population with full Mandarin and Cantonese supported speakers. Exchange Bank of Canada deals exclusively in foreign currency services on a wholesale level to financial institutions and businesses. UNI Financial Corp. was formed as Caisses populaires acadiennes become the first Canadian credit union to obtain a federal bank charter.[19]

Regulation

Canada's federal government has sole jurisdiction for banks according to the Canadian Constitution, specifically Section 91(15) of The Constitution Act, 1867 (30 & 31 Victoria, c.3 (UK)), formerly known as the British North America Act, 1867.[20] Meanwhile, credit unions/caisses populaires, securities dealers and mutual funds are largely regulated by provincial governments.

The main federal statute for the incorporation and regulation of banks, or chartered banks, is the Bank Act (S.C. 1991, c.46),[21] where Schedules I, II and III of this Act list all banks permitted to operate in Canada under these three distinct categories:

The bank regulator is the Office of the Superintendent of Financial Institutions (best known as OSFI),[22] whose authority stems from the Bank Act.[21] The financial groups are also governed by regulatory bodies (bank regulators, securities regulators, insurance regulators, etc.) in each country in which they operate.

Canadian banks
See also: List of banks and credit unions in Canada
First Canadian Place, headquarters of the Bank of Montreal

In everyday commerce, the banks in Canada are generally referred to in two categories: the five large national banks (the "Big Five") and smaller second-tier banks (notwithstanding that a large national bank and a smaller second-tier bank may share the same legal status and regulatory classification).

The five largest banks in Canada are:

Notable second-tier banks include Canadian Western Bank, National Bank of Canada, Laurentian Bank, HSBC Bank Canada, and Tangerine Bank (formerly ING Bank of Canada and now a wholly owned subsidiary of Scotiabank). These second-tier organizations are largely Canadian domestic banking organizations or Canadian subsidiaries of foreign banks. Insurance companies in Canada have also created deposit-taking bank subsidiaries (for example Manulife Bank of Canada), and two notable non-bank consumer financial institutions are ATB Financial (a provincial financial institution owned by the Government of Alberta that operates similarly to a bank) and the Desjardins Group (an alliance of credit unions). For a complete list of institutions see: List of banks and credit unions in Canada

"Big Five" banks

While most Canadian banks operate only within Canada, the Big Five banks are best described as Canadian multinational financial conglomerates that each have a large Canadian banking division.[23] In fiscal 2007, RBC's Canadian segment called "Personal Financial Services" (the segment most related to what was traditionally thought of as retail banking) had revenue of only CAD$5,082 million (or 22.6%) of a total revenue of CAD$22,462 million.[24] Canadian retail operations of the Big Five comprise other activities that do not need to be operated from a regulated bank. These other activities include mutual funds, insurance, credit cards, and brokerage activities. In addition, they have large international subsidiaries. The Canadian banking operations of the Big Five are largely conducted out of each parent company, unlike U.S. banks that use a holding company structure to hold their primary retail banking subsidiaries.

Brands used by the Big Five by major financial service*
Royal Bank of Canada Toronto-Dominion Bank Bank of Nova Scotia Bank of Montreal Canadian Imperial Bank of Commerce
Year Founded 1864 - Halifax, Nova Scotia 1955; Bank of Toronto 1857 and Dominion Bank 1869 - Toronto, Ontario 1832 - Halifax, Nova Scotia 1817 - Montreal, Quebec 1961; Canadian Bank of Commerce 1867 and Imperial Bank of Canada 1875 - Toronto, Ontario
Original Name Merchants' Bank of Halifax Bank of Toronto, Dominion Bank Bank of Nova Scotia Bank of Montreal Canadian Bank of Commerce and Imperial Bank of Canada
Head Office Montreal, Quebec;
Toronto, Ontario[25][note 1]		 Toronto, Ontario Toronto, Ontario Montreal, Quebec Toronto, Ontario
Parent legal name Royal Bank of Canada Toronto-Dominion Bank Bank of Nova Scotia Bank of Montreal Canadian Imperial Bank of Commerce
Group brand RBC TD Bank Group Scotiabank Group BMO Financial Group CIBC
Canadian retail banking RBC Royal Bank TD Canada Trust Scotiabank BMO Bank of Montreal CIBC
Canadian direct banking N/A N/A Tangerine N/A Simplii Financial - Formerly joint venture with Loblaws, PC Financial
U.S. retail banking RBC Bank[note 2]
City National Bank		 TD Bank Scotiabank (active only in Puerto Rico and U.S. Virgin Islands) BMO Harris Bank CIBC Bank USA
Other major international retail banking operations RBC Caribbean[note 3] Scotiabank International CIBC FirstCaribbean
Private banking RBC Wealth Management TD Waterhouse Private Banking Scotia Private Client Group BMO Private Banking CIBC Private Banking
Canadian mutual funds RBC Funds and PH&N Funds TD Investment Services Scotia Mutual Funds BMO Mutual Funds and Guardian Group of Funds CIBC Mutual Funds
U.S. mutual funds Tamarack Funds
Canadian brokerage RBC Direct Investing and RBC Dominion Securities TD Direct Investing and

TD Waterhouse

 ScotiaMcLeod and Scotia iTRADE BMO InvestorLine and BMO Nesbitt Burns CIBC Investor's Edge and CIBC Wood Gundy
U.S. brokerage RBC Wealth Management formerly RBC Dain Rauscher TD Ameritrade (45%) BMO Harris Investor Services
International Brokerage West Indies Stockbrokers Limited TD Waterhouse (UK), TD Direct Investing International (LU)
Canadian insurance RBC Insurance TD Insurance Scotialife Financial BMO Insurance CIBC Insurance
U.S. insurance RBC Insurance TD Insurance
Capital markets RBC Capital Markets TD Securities Scotia Capital BMO Capital Markets CIBC World Markets
Major custodial operations RBC Investor & Treasury Services CIBC Mellon (50%)
Precious metals ScotiaMocatta CIBC Precious Metals

*Marketing brands are shown rather than division names. For example, for internal and investor relation purposes, CIBC uses CIBC Retail Markets as a division name, but this does not normally appear in advertisements and does not feature prominently on account statements. Brand names are sometimes used across legal entities within a financial group. Intermediate umbrella brands (such as RBC Investments that includes the brands RBC Funds, RBC Action Direct, and RBC Dominion Securities) are not shown.

Financial crisis of 2008

During the peak of the 2008 financial crisis, the Bank of Canada, along with the Canada Mortgage and Housing Corporation and the US Federal Reserve provided up to $114 billion of liquidity support to Canadian banks. Of this amount, $69 billion was part of the CMHC mortgage insurance program, a facility set up in 1954 to handle such situations.[26][27]

The World Economic Forum, In the 2010-2011 report Canada ranked 1st in the "Soundness of banks" indicator</ref> ranking as the world's soundest banking system for six consecutive years (2007-2013) according to reports by the World Economic Forum.[28] Released in October 2010, Global Finance magazine put Royal Bank of Canada at number 10 among the world's safest banks and Toronto-Dominion Bank at number 15.[29]


See also

Notes
  1. 1 Place Ville Marie in Montreal is listed as the head office for RBC. However, Royal Bank Plaza in Toronto is listed as its corporate headquarters.
  2. Since 2011, only serves Canadian tourists and expatriates. Retail banking for U.S. customers sold to PNC Financial Services.
  3. Formerly Royal Bank of Trinidad and Tobago (RBTT).

Citation
  1. William O’Connell, "The Great Canadian Oligopoly"
  2. Ali, Zarmina (April 7, 2020). "The world's 100 largest banks". Standard & Poor. Retrieved June 23, 2020.
  3. World Economic Forum - Global Competitiveness Report Archived 2010-12-06 at the Wayback Machine.
  4. "Canada's Banks" Archived 2010-01-25 at the Wayback Machine Canadian Ministry of Finance, 2002
  5. Automated teller machines (ATMs) (per 100,000 adults), The World Bank
  6. "Our nation of oligopolies not good for consumers, but great for investors". Financial Post. 1970-01-01. Retrieved 2020-12-12.
  7. How Bill Downe turned 200-year-old BMO from laggard to leader, Financial Post, July 20, 2017
  8. "Archived copy" (PDF). Archived (PDF) from the original on 2014-07-08. Retrieved 2014-09-23.CS1 maint: archived copy as title (link)
  9. The Bank's History, Bank of Canada
  10. Canada rated world's soundest bank system: survey, Reuters
  11. These are the 14 countries with the safest banks in the world, Independent
  12. "Canadian banks the safest in the world, Moody's says", The Star
  13. List of dividend-paying firms shrinking, The Globe and Mail
  14. Toronto-Dominion Bank (TSX:TD): Time to Buy This Top Canadian Dividend Stock?, Yahoo! Finance
  15. CIBC Stock Is a Top Pick for Retirees, Yahoo! Finance
  16. 2 Best Canadian Dividend Stocks to Buy After the Market Correction, Yahoo! Finance
  17. The bank failures of 1985 (PDF), The Bank of Canada
  18. "Canadian banks are the soundest in the world: report". Archived from the original on 2008-10-11. Retrieved 2008-10-09.
  19. "New banks in Canada look to target niche markets". Archived from the original on 2016-09-26. Retrieved 2016-09-27.
  20. "Constitution Act 1867-1982". Government of Canada.
  21. "Bank Act S.C. 1991, c. 46". Government of Canada.
  22. "Office of the Superintendent of Financial Institutions". Government of Canada.
  23. "The Big Five Banks in Canada". Investopedia. Retrieved 4 January 2020.
  24. "Archived copy" (PDF). Archived (PDF) from the original on 2008-02-27. Retrieved 2007-12-01.CS1 maint: archived copy as title (link)
  25. "Royal Bank of Canada: Annual Report 2015" (PDF). Royal Bank of Canada. 31 October 2008. Retrieved August 5, 2014.
  26. Banks got $114B from governments during recession Archived 2013-05-31 at the Wayback Machine, CBC News, 30 April 2012. Retrieved 31 May 2013
  27. Did Canadian banks receive a secret bailout? Financial post, 30 April 2012. Retrieved 31 May 2013
  28. "Canadian banks remain soundest according to World Economic Forum, six years in a row". Cba.ca. 2013-09-04. Archived from the original on 2014-07-26. Retrieved 2014-07-18.
  29. The world's 20 safest bank "The world's 20 safest banks". Archived from the original on 2010-10-06. Retrieved 2010-12-19.

Further reading
  • Bordo, Michael D.; Redish, Angela; Rockoff, Hugh (2014). "Why didn't Canada have a banking crisis in 2008 (or in 1930, or 1907, or …)?". The Economic History Review. 68 (1): 218–243. doi:10.1111/1468-0289.665. S2CID 154482588.
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