Banking in Canada

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Banking in Canada is widely considered the most efficient and safest banking system in the world, ranking as the world's soundest banking system for the past three years according to reports by the World Economic Forum. Released at October 2010, Global Finance magazine put Royal Bank of Canada at number 10 among the world's safest bank and Toronto-Dominion Bank at number 15. According to the Department of Finance, Canada’s banks, also called chartered banks, have over 8,000 branches and almost 18,000 automated banking machines (ABMs) across the country. In addition, "Canada has the highest number of ABMs per capita in the world and benefits from the highest penetration levels of electronic channels such as debit cards, Internet banking and telephone banking".

History

Origins

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. Other banks soon followed and began business and after a lengthy approval process began unregulated banking business. These institutions issued the only local currency notes until amendments in the British North America Act allowed federal and provincial governments to begin to introduce their own notes starting in 1866. Official Canadian currency took the form of the Canadian dollar in 1871, overriding the currency of individual banks. The establishment of the Bank of Canada in 1935 was also an important milestone in banking and monetary governance. See full article, Early Canadian banking system

Despite various loss events (such as the Latin American debt crisis, the collapse of Olympia and York, Enron-related liabilities, and the U.S. Subprime mortgage crisis), the big five banks have thus far proven to be safe and stable companies. For example, in securities prospectuses the Royal Bank of Canada says it has paid a common share dividend in every year since 1870, the year after it received its banking charter.

According to the Department of Finance, two small regional banks failed in the mid-1980s, the only such failures since 1923, which is the year Home Bank failed. There were no bank failures during the Great Depression compared to 9000+ in the US.

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.

Canadian Banks

First Canadian Place

In everyday commerce, the banks in Canada are generally referred to in two categories: 1) the five large national banks and 2) 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 - see Safety and Soundness below.)

The five largest banks in Canada are:

• Royal Bank of Canada
• Toronto Dominion Bank
• Bank of Nova Scotia
• Bank of Montreal
• Canadian Imperial Bank of Commerce

Notable second tier banks include the National Bank of Canada, the Laurentian Bank, the Desjardins Group (technically not a bank but an alliance of credit unions), HSBC Bank Canada, and ING Bank of Canada. These second tier organizations are largely Canadian domestic banking organizations. Insurance companies in Canada have also created deposit-taking bank subsidiaries. For a complete list of institutions see: List of banks in Canada

The "Big Five" Banks

Unlike the smaller Canadian banks, the Big Five are not just Canadian banks, but are instead better described as international financial conglomerates, each with a large Canadian banking division. 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. 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 (RBC)	Toronto-Dominion Bank (TD)	Bank of Nova Scotia (BNS)	Bank of Montreal (BMO)	Canadian Imperial Bank of Commerce (CIBC)
Year Founded	1864 - Halifax, Nova Scotia	1955 - Bank of Toronto 1857; Dominion Bank 1869 - Toronto, Ontario	1832 - Halifax, Nova Scotia	1817 - Montreal, Quebec	1961; 1867 Canadian Bank of Commerce 1867 and 1875 Imperial Bank of Canada - 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	Toronto, Ontario	Toronto, Ontario	Toronto, Ontario	Toronto, Ontario	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 Financial Group	Scotiabank Group	BMO Financial Group	CIBC
Canadian retail banking	RBC Royal Bank	TD Canada Trust	Scotiabank	BMO Bank of Montreal	CIBC
U.S. retail banking	RBC Bank *Note: Sold in June 2011	TD Bank	None	Harris Bank	None - Amicus Bank's Amicus FSB joint venture Marketplace Bank/Safeway Select Bank 1999-2002
Other major international retail banking operations	RBC Royal Bank of Canada and RBTT (Caribbean branches)		Scotiabank International		FirstCaribbean
Private banking	RBC Wealth Management	TD Waterhouse Private Banking	Scotia Private Client Group	BMO Harris Private Banking	CIBC Private Banking
Canadian mutual funds	RBC Funds and PH&N Funds	TD Mutual Funds	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 Waterhouse	ScotiaMcLeod	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)
Canadian insurance	RBC Insurance	TD Insurance	Scotia Insurance	BMO Life	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 Dexia (50%)				CIBC Mellon (50%)
Precious metals			ScotiaMocatta

*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.

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. 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), where Schedules I, II and III of this Act list all banks permitted to operate in Canada under these three distinct categories:

• Schedule I: Banks allowed to accept deposits and which are NOT subsidiaries of a foreign bank. Examples include "The Big Five" banks (as mentioned above) and smaller second tier banks such as National Bank of Canada, Laurentian Bank of Canada, President's Choice Financial and Canadian Western Bank. Because the Schedule I banks are not subsidiaries of any foreign bank, they are the true domestic banks and are the only banks allowed to receive, hold and enforce a special security interest described and provided for under the Bank Act and known to Canadian lawyers and bankers as the "Bank Act security".

• Schedule II: Banks allowed to accept deposits and which are subsidiaries of a foreign bank. Examples include AMEX Bank of Canada, Citibank Canada, HSBC Bank Canada, ING Bank of Canada and Walmart Canada Bank. Like the Schedule I banks, the Schedule II banks are incorporated under the Bank Act.

• Schedule III: Foreign banks permitted to carry on business in Canada. Examples include Bank of America, Capital One, Credit Suisse and Deutsche Bank AG. Unlike the Schedule I and Schedule II banks, the Schedule III banks are NOT incorporated under the Bank Act and they operate in Canada, usually within the country's largest cities (being Toronto, Montreal, Calgary and Vancouver), under certain restrictions mentioned in the Act.

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

See also

• Bank of Montreal
• Banking in Canada
• Canadian and American economies compared
• Canadian Imperial Bank of Commerce
• Manulife Financial
• National Bank of Canada
• Royal Bank of Canada
• Scotiabank
• Sun Life Financial
• Toronto-Dominion Bank

References

• Financial Institutions and Markets, Department of Finance, URL accessed 6 August 2006

Links

• Bank Act, S.C. 1991, c.46, Department of Justice, URL accessed 2 November 2006
• OSFI website, Office of the Superintendent of Financial Institutions, URL accessed 2 November 2006