Magazine article American Banker

Law in Canada Would Allow Bigger Loans by U.S. Banks

Magazine article American Banker

Law in Canada Would Allow Bigger Loans by U.S. Banks

Article excerpt

U.S. banks could make more big loans to Canadian businesses under a proposal to be considered by Canada's government.

The measure, which is expected to pass Parliament and become effective sometime in 1998, would allow foreign banks to branch into Canada without having to set up separate subsidiaries of their parent companies.

The law would allow banks to cut some operational costs and grant larger credits by using parent companies' capital. Under this new legislation, banks would not be allowed to establish branches to collect consumer deposits.

The measure, which will be offered by Doug Peters, Canada's secretary of state for finance, is expected to be introduced to Parliament before the end of the year. Because it has the support of Canada's biggest banks, it is expected to pass easily. The impetus comes from government's desire to encourage more competition among banks. Canada's six largest banks account for about 90% of the country's banking assets.

However, "it will not create a rush to open street-level offices," said Alfred Buhler, chairman and chief executive of Bank of America Canada.

Rather, Mr. Buhler, who has been one of the proponents of easing restrictions on foreign banks in Canada, said the measure would allow his company to participate as a major loan underwriter. Currently the Toronto- based BankAmerica Corp. unit is limited to participating in loans of $200 million or less. "In today's world, that's not a very large number," Mr. Buhler said.

In addition to BankAmerica, other banks with large operations in Canada include Citicorp and Mellon Bank Corp. Spokesman John M. Morris said Citicorp liked the measure because it would help the bank save on operational expenses. Citicorp was among a group of institutions lobbying for the change. "We push in all jurisdictions for modernization of banking services," Mr. …

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