Set Canadian banks free
Current rules governing mergers is handcuffing international growth
The federal Liberal government will do everything in its power to prevent Canada's banks from succeeding on the world stage.
Last week, Finance Minister John Manley took a step that he hopes will postpone the long-overdue restructuring of the financial services industry until after the next federal election -- perhaps until 2005. He said that he needs another three more months to make up his mind on an issue that has been rattling around his Ministry since 1996 -- effectively bringing any bank merger proposal into a direct collision with the Liberal party's leadership convention in November.
Last fall, Mr. Manley and his junior Finance Minister, Maurizio Bevilacqua, asked the Senate Banking Committee and the House Finance Committee to examine the public interest implications of large bank mergers.
The timing of this public interest reference seemed odd. Odder still when we learned that the Prime Minister had just overruled Mr. Manley and scotched merger proposals between the Bank of Nova Scotia and the Bank of Montreal, as well as between Manulife and the CIBC.
The Liberals were again playing politics with the Canadian banking system. The Finance Minister said 'yes' to bank mergers last summer and the Prime Minister said 'no' to bank mergers last fall.
This obvious chasm on important public policy questions that has developed between the Prime Minister and a succession of finance ministers with their sights on 24 Sussex is another alarming example of Liberal leadership politics creating instability and uncertainty in Canada. This is particularly destabilizing for Canada's capital markets -- on which most Canadians rely for their retirement income.
More troubling still is government central planning and interfering with our financial institutions' ability to develop that is making Canada look more like a banana republic than Mr. Manley's "northern tiger."
In the words of the CEO of Barclays: "It's purely political and not about concentration. They are marginalizing some very fine banks that are dropping like stones in the rankings. Canadian banks are landlocked in an indigenous market with a poison pill in their stocks. The obvious answer is to permit more consolidation. I think it's a disgrace."
Canada's financial services sector has the capacity to lead globally, yet the Liberals have repeatedly handcuffed the sector, which employs more than 235,000 Canadians directly and purchased $9.8-billion in goods and services from outside suppliers in 2000.
Canadian banks have a distinct advantage over their U.S. counterparts. They know how to run large national networks of branches, something that until very recently U.S. banks -- a patchwork quilt of small, regional operations -- did not. Canadians still have an opportunity to exploit this advantage south of the border. But not for long.
The U.S. market is rapidly consolidating. Once-smaller players such as Bank One have leapfrogged the Canadian banks and begun gobbling up the smaller banks, building their own national networks. Canadians should be in there competing for this lucrative market, but they don't have the capital scale to do so.
Peter Godsoe, CEO of the Bank of Nova Scotia, recently said that his bank could make a $2-billion acquisition on its own in the United States, but said a merger would permit his bank to spend five times more on a purchase.
While Canadian banks have made some inroads south of the border, the Liberal government's de facto prohibition on mergers has stymied their progress. Our financial institutions should be given the freedom to combine their capital to make them true players in the United States
Canadians cheered CN, and its former visionary CEO Paul Tellier, when it bought Illinois Central and Wisconsin Central. Shouldn't we want the same for our banks? By the time this government gets its bank merger review process on track, the train will have left the station.
As a Member of Parliament with rural bank branches in my riding, I know that bank mergers will have an impact in my community. That is why I wholeheartedly want merger proposals subject to careful scrutiny. Bankers should address public interest concerns related to a specific merger proposal through negotiations with the Office of the Superintendent of Financial Institutions and the Competition Bureau. The Minister of Finance should have to justify his decision one way or the other to Parliament.
As a citizen, however, I also want our banks to determine their own destiny and use their Canadian base as a platform for international expansion -- just as CN has done.
Mr. Bevilacqua assured a Bay Street audience a month ago that the government would respond "very soon" to the House finance committee report. Mr. Manley should stop the foot-dragging, follow the advice of the Canadian Chamber of Commerce and respond to the report without delay. As the chamber points out, all businesses, including financial institutions, need greater clarity and predictability.
Scott Brison, MP, is the finance critic for the Progressive Conservatives.
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