Canada Panel: Ease Rules for Foreign Banks

By Kraus, James R. | American Banker, September 16, 1998 | Go to article overview
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Canada Panel: Ease Rules for Foreign Banks


Kraus, James R., American Banker


Canada took a critical step toward liberalizing its banking system Tuesday as a government-appointed task force recommended lifting restrictions on foreign financial institutions and allowing megamergers among Canadian banks.

"The report offers a thoughtful, outward-looking model and a good assessment of international finance trends and what they mean for participants in this important market," said Edward W. Russell, senior vice president for international government affairs at Chase Manhattan Corp.

He and other bankers welcomed the report's recommendations favoring legislation that would let foreign banks operate in Canada through branches as well as through subsidiaries and to expand other operations.

The recommendations are expected to have an important impact on a review by Canada's House of Commons on removing constraints from foreign financial institutions, including restraints on supplying a broader range of financial services and gaining access to Canada's payment systems.

"It's a pro-competitive and pro-deregulation point of view," said Fred Lazar, a professor of business and finance at York University in Toronto. "It's an important first step."

Separately, the report gave its blessing in principle to the planned mergers of Royal Bank of Canada with Bank of Montreal and of Canadian Imperial Bank of Commerce with Toronto-Dominion Bank.

The proposed mergers have drawn fierce opposition by consumer groups concerned about the enormous market share the combined entities would have.

"The task force recognized that mergers can be a valid business strategy," said Harold MacKay, a Canadian lawyer and chairman of the task force, in a statement.

"It concluded that there should be no absolute ban on mergers among large banks, insurance companies, or other financial institutions."

U.S. banks have long sought to operate in Canada through branches of their parents rather than through separately capitalized subsidiaries that limit the scope of their operations and are more expensive to run.

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