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Canada’s banking industry is dominated by the Big Six banks that hold more than 90-per-cent market share.Fred Lum/the Globe and Mail
Ottawa is promising legislative changes to boost competition in Canada’s banking sector in the federal budget released Thursday, aiming to make it easier for new financial institutions to enter the market and gain a foothold.
The government will change the law that governs Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, to add a “secondary competition objective” to its mandate, the budget says. The current OSFI mandate focuses solely on maintaining a stable and sound financial system.
Further amendments to the acts governing banks, trust companies and insurers will establish a one-year timeline for making decisions on applications to create new banks, the budget says.
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OSFI superintendent Peter Routledge has already been keenly focused on bringing competition and innovation into Canada’s highly concentrated banking sector. Canada’s banking industry is dominated by the Big Six banks – Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada – that hold more than 90-per-cent market share.
In June, Mr. Routledge launched a pilot project that could strip years off the process to become a bank in a bid to bring more competitors into the market.
Over the next decade, OSFI will have to regulate through a period of immense change in the financial sector, Mr. Routledge said in an interview in October. “Canadians want more competition,” he said at the time.
Thursday’s budget also seeks to allow more flexible ownership structures for smaller banks, making it easier for them to grow larger in a market that is highly concentrated and dominated by Canada’s Big Six lenders.
The threshold at which a bank’s shares must be widely held would rise from $12-billion to $25-billion in equity. And foreign bank subsidiaries with less than $8-billion in equity would be exempted from the public shareholding requirement, provided their parent company abroad is widely held and listed on a recognized foreign stock exchange.
The plan would also give credit unions easier ways to access capital and expand their reach.
Ottawa has called on financial institutions to help drive the federal government’s nation-building efforts, and OSFI has introduced measures aimed at unleashing more bank lending.
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The regulator has also been examining how its capital framework may disadvantage small and medium-sized lenders.
In an interview last month, Mr. Routledge referred to this as a “competitive imbalance” between the smaller banks that follow a standardized approach and the larger banks that use internal ratings to manage capital.
“Expanding OSFI’s mandate to include growth and competition is an important step in balancing financial stability and economic resilience,” Canadian Bankers Association chief executive officer Anthony G. Ostler said in a statement.
“Measures to facilitate the process for becoming a federally regulated financial institution and to encourage the growth of small and mid-sized banks will allow for more flexibility and choice.”
The budget measures are part of a federal plan aimed at “responsibly modernizing” Canada’s financial sector.
Other financial-sector measures included in Thursday’s budget include a plan to give troubled banks more “exit options,” providing them greater flexibility to transfer assets and liabilities to other financial institutions in periods of stress.
Ottawa also intends to update Canada’s deposit insurance framework by raising its limit to $250,000 from $100,000 and removing the limit on eligible deposits in registered and tax-free accounts, among other measures.