The International Monetary Fund today takes a deeper look at why banks in Canada and a handful of other countries withstood the 2008-2009 meltdown, which could provide lessons going forward.
In its financial stability report, the IMF concludes that the “funding structure of banks could be more important than a lack of foreign bank ownership for financial stability.
Canada, Australia, India and Malaysia, the four countries studied, have a “relatively low degree” of exposure to international banking, the IMF said in trying to gauge the connection with faring well in the crash.
Setting aside India and Malaysia, the IMF said the Canadian and Australian regulatory structures “share some features that might have resulted in less globally integrated banking systems.”
Notably, the two countries share a “de facto” ban on big bank mergers.
Canada has six major domestic banks: Royal Bank of Canada, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, Bank of Montreal, Bank of Nova Scotia and the smaller, Quebec-based National Bank of Canada.
Then Liberal finance minister Paul Martin rejected two huge mergers in the late 1990s – RBC with BMO, and CIBC with TD - and nothing has changed since despite the ascension of the Conservatives.
Mr. Martin killed the proposed mergers on grounds that there would be too much power in the hands of too few banks, reduced competition, and troubles for the government when problems arose.
“While its primary objective is to retain competition, the prohibition has prevented an increase in the size of these banks and the creation of national ‘champions’ that could compete with major global financial institutions,” the report said.
“This may have been a factor limiting their banks’ international activities.”
It also cited ownership restrictions.
In Canada, the major domestic banks must be widely held. In Australia, acquisitions representing more than 15 per cent of the votes in a major bank must be approved, taking into account “their ability to meet prudential requirements, the implications of foreign ownership, and the impact on competition.”
Original Article
Source: the globe and mail
Author: Michael Babad
In its financial stability report, the IMF concludes that the “funding structure of banks could be more important than a lack of foreign bank ownership for financial stability.
Canada, Australia, India and Malaysia, the four countries studied, have a “relatively low degree” of exposure to international banking, the IMF said in trying to gauge the connection with faring well in the crash.
Setting aside India and Malaysia, the IMF said the Canadian and Australian regulatory structures “share some features that might have resulted in less globally integrated banking systems.”
Notably, the two countries share a “de facto” ban on big bank mergers.
Canada has six major domestic banks: Royal Bank of Canada, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, Bank of Montreal, Bank of Nova Scotia and the smaller, Quebec-based National Bank of Canada.
Then Liberal finance minister Paul Martin rejected two huge mergers in the late 1990s – RBC with BMO, and CIBC with TD - and nothing has changed since despite the ascension of the Conservatives.
Mr. Martin killed the proposed mergers on grounds that there would be too much power in the hands of too few banks, reduced competition, and troubles for the government when problems arose.
“While its primary objective is to retain competition, the prohibition has prevented an increase in the size of these banks and the creation of national ‘champions’ that could compete with major global financial institutions,” the report said.
“This may have been a factor limiting their banks’ international activities.”
It also cited ownership restrictions.
In Canada, the major domestic banks must be widely held. In Australia, acquisitions representing more than 15 per cent of the votes in a major bank must be approved, taking into account “their ability to meet prudential requirements, the implications of foreign ownership, and the impact on competition.”
Original Article
Source: the globe and mail
Author: Michael Babad
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