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Having bigger banks is not necessarily all bad. One of the reasons the Canadian financial system was rocked to a lesser extent than the rest of the world's is b

Having bigger banks is not necessarily all bad. One of the reasons the Canadian financial system was rocked to a lesser extent than the rest of the world's is because our banking industry is dominated by a handful of big stable players. So their growth strategies recognize that they can't possibly take huge market share away from competitors. Instead, they focus on taking less risky gambles that will provide sustainable growth and minimize the risk of losing existing market share. The American banking sector seems to have a lot more competition but the competition breeds some idiotic pissing matches as each player jockeys for a better position while the opportunity exists. All this said, Canadian banks are notorious for being super conservative due to the lack of competition. During good economic times, this can be bad because they're less willing to say, provide small business loans. EDIT: was looking for marketshare stats and came across this article: http://online.wsj.com/article/SB124268900278332309.html http://online.wsj.com/article/SB124268900278332309.html The top 5 banks in Canada have 85% of the banking assets.

jhancock 17y ago
Interesting take on why Canadian banks are doing well. I had heard a different take earlier this year. I read they were doing well because the Canadian gov did not deregulate to allow them to take the types of risks that banks, investment banks, and insurers have done in the U.S.
- pyre 17y ago
  Well, if they are not allowed to take on riskier ventures, then I was say that it's most likely that they didn't due to regulation rather than due to a more conservative stance on risk. That said, even if they simply weren't allowed to take on that risk, it's an interesting take on what could have played out had they been unregulated.
- 9oliYQjP 17y ago
  Yes, that was also part of it. There was a period of time when the Canadian banks wanted to merge to form even bigger banks and reduce competition further. The Liberal government during the 1990s and early 2000s prevented two mergers that would have seen 4 of the top 5 banks merged into 2 companies. Then they went a step further and said they would not approve any mergers until a proper framework was in place for proving that a given merger would not a) unnecessarily concentrate economic power, b) reduce competition, and c) practically limit the government's ability to regulate the new entity. The Finance Minister at the time, Paul Martin, was the same man who brought Canada's spiralling deficit under control during the 1990s by helping to break a promise to cut a federal sales tax and cutting social program spending. He was a big factor in getting the Liberal party into majority governments between 1993 and 2003 even though he pretty much hated the Prime Minister of the time. Ironically enough, when the Prime Minister Jean Chretien decided to give up the reigns of power to Paul Martin, Canadians were pissed at the Liberals for a corruption scandal that saw tax payer money funnelled to various businesses in Quebec to promote the concept of a united Canada. Remember that in 1995, Quebec was 1% of the popular vote away from being in favour of separating from Canada; so close of a call that France had lined up in support for recognizing Quebec as a country while the Clinton administration lined up against it. Anyways, Paul Martin was popular enough that he won the election in 2003 but with a minority government, which in a parliamentary system means that the opposing parties can essentially gang up on the ruling party and force another election. This happened in early 2006, when Canadians had a chance to hear the details of how tens of millions of dollars were spent on putting Canadian flags on things like the F1 race in Montreal. They decided to vote in the Conservatives of Stephen Harper, but with a minority government, and we've been ruled by them ever since. I brought up all of these details because funny enough, one of the things the Conservatives wanted to do was push through the same financial deregulation reform that had happened south of our border. Unfortunately, having a minority government they could not do that. The Canadian banks were pushing the government to allow them more freedom and the government was simply waiting for a chance, one that they did not get because even after calling another election prematurely when they thought they had a chance to win big time, they got another minority mandate from the people. So you could say that Canadians were a bit lucky. A two-bit scandal involving tens of millions of dollars of tax payer money spent to pay for propaganda in the 1990s to help avoid the fracture of our country had the indirect effect of ensuring that our legislation could not "catch up" to the rest of the westernized world. And all the while Stephen Harper has been essentially counting his blessings because he knew that his government would have pushed through the banking deregulation reforms in 2006. That's why it makes me laugh when he goes on CNN or to Wall Street to boast about our banks. He wanted to change the rules he's now praising.
  - cwan 17y ago
    It's simply not true or as simple to say that Canada hasn't fallen into the same issues as other institutions because of regulation. Yes, consolidation was denied but investment banks were part of retail banks long ago. Megan McArdle has a good post on this: http://meganmcardle.theatlantic.com/archives/2009/05/canadian_exceptionism.php http://meganmcardle.theatlantic.com/archives/2009/05/canadia...
    - 9oliYQjP 17y ago
      It is a good article, but I'd say a more precise word for Canadian banks is that they're skeptical, rather than Conservative. I think skepticism helps to define Canadians. We were skeptical enough to not join the Americans in leaving the monarchy. The difference between skepticism and conservatism is being open to the possibility of change. Here's where I think regulation did come into play. While the Canadian banks were and are skeptical, I think they had had enough proof by the mid 1990s that the American style of banking was the future, that they were willing to change. It's the rationale for the merger requests to the Liberals in the 1990s. They wanted to be big enough to play with the big boys down south. That meant playing the same style of game. I think we dodged a bullet. I'm be no means a Liberal fan boy, and for the life of me, I can't understand why Paul Martin didn't let the mergers to happen. No doubt his social circle of friends would have been coaxing him to do just that (can you tell I'm a bit cynical when it comes to politicians?). But read some of the accounts of the merger situation, from more than 10 years ago, like this one: http://74.125.47.132/search?q=cache:FlhuiCh6d7sJ:www.thecanadianencyclopedia.com/index.cfm http://74.125.47.132/search?q=cache:FlhuiCh6d7sJ:www.thecana... For those trying to downplay the role the government had, the proof is in some library archives. Just read it. Here's a juicy tidbit: Banking and government sources both say Martin did his utmost to be diplomatic. He did not want to appear to have made up his mind, given that the federal competition bureau would not deliver its report on the mergers for almost two weeks, but he also wanted to prepare the banker for bad news. Like everything else arising from this year’s ill-fated bank mergers, however, this meeting between two of the most powerful figures in Canadian finance went off the rails fairly fast. For weeks, Cleghorn’s fuse had been growing shorter as his frustration mounted over Canadians’ inability to understand the bankers’ point of view. In response to Martin’s evasiveness, something apparently snapped. Cleghorn asked straight out whether the Royal’s merger with the Bank of Montreal, and the Toronto Dominion Bank’s copycat arrangement with the Canadian Imperial Bank of Commerce, were going to be allowed to proceed. "No," Martin said simply. Cleghorn, according to both banking and federal government sources, said something along the lines of "No, but . . . ?" or "Unless what?" Martin repeated his first answer. "No." This was when the usually composed banker lost it, according to government officials. Watching a year’s work sacrificed to what the bankers see as political expediency and parochialism was apparently too much to swallow. His face grew red and he pounded the table, while giving the minister an earful. For once in his life, Martin remained ice-cool. As Cleghorn gave vent to his complaints, all the finance minister said was: "John, you’re not listening to me." Sources close to Martin say he repeated this phrase several times before Cleghorn calmed down.
nkassis 17y ago
They're so conservative that they only open their counter 2 hours a day. ;p

jhancock 17y ago

Interesting take on why Canadian banks are doing well. I had heard a different take earlier this year. I read they were doing well because the Canadian gov did not deregulate to allow them to take the types of risks that banks, investment banks, and insurers have done in the U.S.

pyre 17y ago
Well, if they are not allowed to take on riskier ventures, then I was say that it's most likely that they didn't due to regulation rather than due to a more conservative stance on risk. That said, even if they simply weren't allowed to take on that risk, it's an interesting take on what could have played out had they been unregulated.
9oliYQjP 17y ago
Yes, that was also part of it. There was a period of time when the Canadian banks wanted to merge to form even bigger banks and reduce competition further. The Liberal government during the 1990s and early 2000s prevented two mergers that would have seen 4 of the top 5 banks merged into 2 companies. Then they went a step further and said they would not approve any mergers until a proper framework was in place for proving that a given merger would not a) unnecessarily concentrate economic power, b) reduce competition, and c) practically limit the government's ability to regulate the new entity. The Finance Minister at the time, Paul Martin, was the same man who brought Canada's spiralling deficit under control during the 1990s by helping to break a promise to cut a federal sales tax and cutting social program spending. He was a big factor in getting the Liberal party into majority governments between 1993 and 2003 even though he pretty much hated the Prime Minister of the time. Ironically enough, when the Prime Minister Jean Chretien decided to give up the reigns of power to Paul Martin, Canadians were pissed at the Liberals for a corruption scandal that saw tax payer money funnelled to various businesses in Quebec to promote the concept of a united Canada. Remember that in 1995, Quebec was 1% of the popular vote away from being in favour of separating from Canada; so close of a call that France had lined up in support for recognizing Quebec as a country while the Clinton administration lined up against it. Anyways, Paul Martin was popular enough that he won the election in 2003 but with a minority government, which in a parliamentary system means that the opposing parties can essentially gang up on the ruling party and force another election. This happened in early 2006, when Canadians had a chance to hear the details of how tens of millions of dollars were spent on putting Canadian flags on things like the F1 race in Montreal. They decided to vote in the Conservatives of Stephen Harper, but with a minority government, and we've been ruled by them ever since. I brought up all of these details because funny enough, one of the things the Conservatives wanted to do was push through the same financial deregulation reform that had happened south of our border. Unfortunately, having a minority government they could not do that. The Canadian banks were pushing the government to allow them more freedom and the government was simply waiting for a chance, one that they did not get because even after calling another election prematurely when they thought they had a chance to win big time, they got another minority mandate from the people. So you could say that Canadians were a bit lucky. A two-bit scandal involving tens of millions of dollars of tax payer money spent to pay for propaganda in the 1990s to help avoid the fracture of our country had the indirect effect of ensuring that our legislation could not "catch up" to the rest of the westernized world. And all the while Stephen Harper has been essentially counting his blessings because he knew that his government would have pushed through the banking deregulation reforms in 2006. That's why it makes me laugh when he goes on CNN or to Wall Street to boast about our banks. He wanted to change the rules he's now praising.
- cwan 17y ago
  It's simply not true or as simple to say that Canada hasn't fallen into the same issues as other institutions because of regulation. Yes, consolidation was denied but investment banks were part of retail banks long ago. Megan McArdle has a good post on this: http://meganmcardle.theatlantic.com/archives/2009/05/canadian_exceptionism.php http://meganmcardle.theatlantic.com/archives/2009/05/canadia...
  - 9oliYQjP 17y ago
    It is a good article, but I'd say a more precise word for Canadian banks is that they're skeptical, rather than Conservative. I think skepticism helps to define Canadians. We were skeptical enough to not join the Americans in leaving the monarchy. The difference between skepticism and conservatism is being open to the possibility of change. Here's where I think regulation did come into play. While the Canadian banks were and are skeptical, I think they had had enough proof by the mid 1990s that the American style of banking was the future, that they were willing to change. It's the rationale for the merger requests to the Liberals in the 1990s. They wanted to be big enough to play with the big boys down south. That meant playing the same style of game. I think we dodged a bullet. I'm be no means a Liberal fan boy, and for the life of me, I can't understand why Paul Martin didn't let the mergers to happen. No doubt his social circle of friends would have been coaxing him to do just that (can you tell I'm a bit cynical when it comes to politicians?). But read some of the accounts of the merger situation, from more than 10 years ago, like this one: http://74.125.47.132/search?q=cache:FlhuiCh6d7sJ:www.thecanadianencyclopedia.com/index.cfm http://74.125.47.132/search?q=cache:FlhuiCh6d7sJ:www.thecana... For those trying to downplay the role the government had, the proof is in some library archives. Just read it. Here's a juicy tidbit: Banking and government sources both say Martin did his utmost to be diplomatic. He did not want to appear to have made up his mind, given that the federal competition bureau would not deliver its report on the mergers for almost two weeks, but he also wanted to prepare the banker for bad news. Like everything else arising from this year’s ill-fated bank mergers, however, this meeting between two of the most powerful figures in Canadian finance went off the rails fairly fast. For weeks, Cleghorn’s fuse had been growing shorter as his frustration mounted over Canadians’ inability to understand the bankers’ point of view. In response to Martin’s evasiveness, something apparently snapped. Cleghorn asked straight out whether the Royal’s merger with the Bank of Montreal, and the Toronto Dominion Bank’s copycat arrangement with the Canadian Imperial Bank of Commerce, were going to be allowed to proceed. "No," Martin said simply. Cleghorn, according to both banking and federal government sources, said something along the lines of "No, but . . . ?" or "Unless what?" Martin repeated his first answer. "No." This was when the usually composed banker lost it, according to government officials. Watching a year’s work sacrificed to what the bankers see as political expediency and parochialism was apparently too much to swallow. His face grew red and he pounded the table, while giving the minister an earful. For once in his life, Martin remained ice-cool. As Cleghorn gave vent to his complaints, all the finance minister said was: "John, you’re not listening to me." Sources close to Martin say he repeated this phrase several times before Cleghorn calmed down.

nkassis 17y ago

They're so conservative that they only open their counter 2 hours a day. ;p