Sweeping Bank Reform Plan Has Canada's Bankers Upset
Clarke, David, American Banker
MONTREAL -- It is going to be a whole new ball game for Canadian banking and many bankers are worried about it. On April 15, the Progressive Conservative government of Prime Minister Brian Mulroney released a discussion paper calling for sweeping changes in the playing rules and announced that legislation will follow by autumn.
The key proposal: allowing trusts, insurance companies and industrial-based conglomerates to get into commercial lending and other traditional banking activities by setting up holding companies to operate a new class of "C" banks.
The established 14 domestic "A" banks and 58 foreign-owned "B" banks will not be able to participate in ownership of C banks, though the existing 10% limit on individual shareholding of existing chartered banks will not apply to the newcomers.
The C banks will be allowed to merge distribution and marketing with associated corporate entities to offer a full range of insurance, trust, banking, and investment services. The A and B banks will have to stick to banking under the terms of the Bank Act -- not due for revision until 1990.
Other proposals include measures to expand the powers of federal regulators nd review the operations of the Canada Deposit Insurance Corp. in the wake of trust company failures and the rescue effort required to keep Canadian Commercial Bank solvent. The creation of a Financial Conflicts of Interest Office is also proposed, along with more broadly defined rules to prevent self dealing among financial institutions.
While many bankers are privately expressing disapproval verging on outrage, public reaction varies.
The Canadian Bankers' Association stated that "the paper pays little attention to the need for equal treatment of financial institutions," and asked that the changes proposed for holding companies be extended to chartered banks.
Bankers are Critical of Plan
Gordon Bell, deputy chairman and chief operating officer of the Bank of Nova Scotia, stated that the paper does not respect "the paramount need for competitive equity," and asked why established banks are to be "denied the opportunity to participate in the most far-reaching reform of the financial industry ever undertaken in Canada."
According to Grant Reuber, president of the Bank of Montreal, while the bank accepts the principles presented in the discussion paper, "changes in the regulatory system that discriminate against the banks and give rise to a riskier and more heavily regulated system are unlikely to make the challenge [of consolidating and improving performance] any easier. …