Introduction and the chain of control. It will

Introduction

The financial sector in Canada is highly developed and influential. It is considered to be one of the strongest in terms of providing financial services in the world. It comprises highly demanded banks, trust companies, loan companies, insurance companies, credit union, security dealers, finance and leasing companies, pension fund institutions, mutual fund companies and independent insurance agents and brokers. The Canadian financial system has been ranked several times (seven times to be precise) as one of the soundest in the world by the World Economic Forum, according to the Canadian Trade Commissioner Services. The following essay will describe the banking system in Canada, its structure and the chain of control. It will also speak about the biggest Canadian banks which also called the Big Six Banks, their background, activities and revenues. Finally, the essay will provide a brief explanation of the issue which the financial sector in Canada currently faces in terms of foreign financial institutions entering Canada and functioning in the world in general and the Canadian inability to cope with the international competition due to the new political policy in the financial sector. The overview of the problem will be based on the research of Edward P. Neufeld “Adjusting to Globalization: Challenges for the Canadian Banking System”.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

 

The banking system in Canada

According to U.S. Embassies abroad (2017), there are five main types of banking institutions in Canada. They are chartered banks, trust and loans companies, the cooperative credit movement, life insurance companies and security dealers. Banks are characterized as domestic-owned or foreign-owned and their shares might be widely-held (Schedule I banks) or closely held (Schedule II banks). All the changes such as changes in ownership or shares have to be approved by the Minister of Finance. Generally, in Canada, there are about 29 domestic banks, 24 foreign subsidiaries, 27 full-service foreign bank branches and three foreign bank lending branches and all together they manage more than $4.6 trillion in assets. More than 70% of the total assets of the Canadian financial services are accounted by banks. 3.1% of Canada’s GDP comes from banks. The largest domestic banks or the “Big Six Banks” –  The National Bank of Canada, Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD), Bank of Nova Scotia (Scotiabank), Bank of Montreal. Those banks also have a significant presence outside of Canada, in areas as the USA, South America and Asia.   They will be described later in the essay.

Canadian banks are federally regulated by the Office of the Superintendent of Financial Institutions (OSFI) and must function along with the Bank Act. Some of the financial institutions still can be regulated provincially, those as trust companies and security market activities.

Foreign bank sector meaning the world’s banks subsidiaries and representative offices account for only 10% of Canada’s bank sector assets. Typical foreign banks do not operate largely, focusing mostly on wholesale banking and higher-end commercial lending (exception Hongkong Bank of Canada) and are considered closely held and classified as Schedule II banks under the Banc Act. The foreign banks had been allowed to establish their subsidiaries in Canada since 1980. The entry of foreign well-managed and proven financial institutions is considered to be straightforward. In the recent years, the number of foreign banks in Canada is decreasing, due to the tough competition with the Big Six Banks. They, in turn, having well-established business relationships and branch networks continue to create difficulties for the foreign banks to enter the sector smoothly. 

The third part of Canada’s banking system subsists of small but nevertheless profitable and growing part of domestic banks, which account for only 2.5 % of the total assets. It includes but not limited to a subsidiary of Quebec’s Caisse Populaire movement (Laurentian Bank), a subsidiary of a life insurance Manulife Bank and Canadian Western Bank operating in British Columbia and Alberta (Schedule I).

Canadian banking system made it good through the recession thanks to economical discreet lending, efficient borrowing and risk management practices and regulatory compliance. Country’s banks are continuously rated as safe and sound, unlike a lot of financial institutions in the rest of the world and they are forecasted to grow. “Canada’s Big Six1 banks operate under a government charter, with a national presence and in various business lines. They are well capitalized, well managed and deeply entrenched in the nation’s economy, contributing significantly to its growth” – Cognizant Reports (Canadian Banking Industry: Performance and Perspectives) says.

Canadian banks can rely on the experience they received while successfully managing global financial meltdown together with the operational strategies that kept them stable during the turmoil. This helps to always maintain the consumer loyalty up to today.

The Bank of Canada – central bank

As the Central Banks Guide (2015) describes the Bank of Canada is Canadian central bank that was established in 1934 together with the Bank of Canada Act. Headquartered in Ottawa it does not offer any banking services to the public its primary responsibility as usually the country’s monetary policy and national currency issue. It is the one and only financial institution that can create and distribute the official currency. The bank controls money supply – the total amount of money in the economy and maintains the value of Canadian dollar. The central bank tries to keep the low inflation and sets short-term interest rates to prosecute the monetary policy. It also maintains the Canadian financial system and serves as a banker for the government. According to the Bank of Canada Act, the bank’s role is “to promote the economic and financial welfare of Canada”. The Bank of Canada is among the most important organisms that take care of the Canadian financial system health and stability, it has the power to provide liquidity to the financial institutions and become a lender of last resort for these institutions in case of problems in funding. The central bank is committed in national financial markets as well, taking part in FOREX, trading government securities and setting interest rates. The chief of the bank is the governor which is appointed every 7 years by the board of directors.

 

The “Big Six Banks”

1.      The National Bank of Canada

The bank has its headquarter in Montreal and is considered to be the number 6 largest commercial banks in Canada according to CFI. The NBC has spread its branches nearly through all Canadian regions and served more than 2.4 million individual clients. In 2016 it had a wide network of over 453 branches and 937 ATMs throughout the nation as well as numerous representative offices, subsidiaries and international cooperation.  The clientele includes both Canadian citizens and non-Canadians. The National Bank of Canada is separated from the Canadian Central bank and the Bank of Canada.

2.      Royal Bank of Canada (RBC)

The Royal Bank of Canada was founded in 1864, having its headquarters in Toronto it provides services for the personal and commercial banking, wealth management, insurance, investor and treasury services and capital markets. In total it serves around 16 million customers with the total income of $28 billion and total assets worth $1.2 trillion (2016 according to CFI).

3.      Toronto-Dominion Bank (TD)

Toronto-Dominion Bank provides personal and commercial banking not only in Canada but also in the United States and some other countries. It was established in 1955 and currently serves up to 11 million customers throughout 1,150 branches. The bank’s total income and total assets in 2016 (according to CFI) were worth $6.375 million and $938 billion respectively (CFI).

4.      Bank of Nova Scotia (Scotiabank)

Founded in 1832 Scotiabank has its headquarters in Ontario (Toronto). The main activities of the bank are personal and commercial banking, wealth management and corporate and investment banking. Scotiabank serves more than 23 million clients in all its 55 countries and has its total income amounted to $20.76 billion and total assets – $714.4 billion in 2016 (CFI).

5.      Bank of Montreal

The bank of Montreal, established in 1817 is also considered one of the largest banks in Canada. It mostly provides retail banking, wealth management and investment banking services. The clientele of the bank reaches 12 million customers. In 2016 the bank had its income amounted to $15.574 million and total assets up to $548 (CFI).

 

Current challenge of the Canadian financial system

The Canadian system has always had its advantageous financial system which always proved to be well-managed and reliable. However current century due to several changes in the world economies and general attitude toward globalization have brought Canadian numerous claims blaming its political agendas and policies for being confusing and conflicting and leading to the Canadian inability to handle the world’s competition.

According to Edward P. Neufeld (Adjusting to Globalization: Challenges for the Canadian Banking System), Canadian banks still did well in the second half of XX century while the external factors did not force them to open up to the foreign competition. Now with the dawn of globalization when the transportation and telecommunications became easily accessible, the banks have to adjust to the international competition and foreign entrants, otherwise, the obstacles for the future development are inevitable.  The author argues that “the ability of Canadian institutions to cope with increasing foreign competition will depend on their economic efficiency relative to that of the encroaching competitors”. To continue growing later on the Canadian financial institutions have no way but be globally competitive in both domestic market and international. However, the system does not seem to be willing to respond to it. New legislation and reforms in the financial sector contain discriminatory measures which frustrate the Canadian international competitiveness. They managed to apply the restrictions on the bank merger policy, which prevents the banks from reaching the economies of scale. The reforms also imply the constraint against the life insurance distribution through the bank branches, which restricts the competition in the domestic market right away; the total and constant elimination of banks from the car leasing services, which is highly dominated by the foreign institutions; and the threat in the bill to exclusively large Canadian banks that for not providing certain low-cost services they will be forced to provide them. The financial institution responsible for the foreign legislation reforms have already slipped down numerous important international banks causing the non-interest costs up to 20% higher than they would be with the permitted mergers. The tendency is that the power of globalization will still generate the constant increase in the foreign ownership of Canadian financial institutions and increase in non-Canadian executives running them. In Neufeld’s view, the worst weakness of the new policy is the inability to admit that soon enough the most important source of future competition will be large foreign institutions that operate directly within Canada and outside Canada through the Internet. He assumIntroduction

The financial sector in Canada is highly developed and influential. It is considered to be one of the strongest in terms of providing financial services in the world. It comprises highly demanded banks, trust companies, loan companies, insurance companies, credit union, security dealers, finance and leasing companies, pension fund institutions, mutual fund companies and independent insurance agents and brokers. The Canadian financial system has been ranked several times (seven times to be precise) as one of the soundest in the world by the World Economic Forum, according to the Canadian Trade Commissioner Services. The following essay will describe the banking system in Canada, its structure and the chain of control. It will also speak about the biggest Canadian banks which also called the Big Six Banks, their background, activities and revenues. Finally, the essay will provide a brief explanation of the issue which the financial sector in Canada currently faces in terms of foreign financial institutions entering Canada and functioning in the world in general and the Canadian inability to cope with the international competition due to the new political policy in the financial sector. The overview of the problem will be based on the research of Edward P. Neufeld “Adjusting to Globalization: Challenges for the Canadian Banking System”.

 

The banking system in Canada

According to U.S. Embassies abroad (2017), there are five main types of banking institutions in Canada. They are chartered banks, trust and loans companies, the cooperative credit movement, life insurance companies and security dealers. Banks are characterized as domestic-owned or foreign-owned and their shares might be widely-held (Schedule I banks) or closely held (Schedule II banks). All the changes such as changes in ownership or shares have to be approved by the Minister of Finance. Generally, in Canada, there are about 29 domestic banks, 24 foreign subsidiaries, 27 full-service foreign bank branches and three foreign bank lending branches and all together they manage more than $4.6 trillion in assets. More than 70% of the total assets of the Canadian financial services are accounted by banks. 3.1% of Canada’s GDP comes from banks. The largest domestic banks or the “Big Six Banks” –  The National Bank of Canada, Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD), Bank of Nova Scotia (Scotiabank), Bank of Montreal. Those banks also have a significant presence outside of Canada, in areas as the USA, South America and Asia.   They will be described later in the essay.

Canadian banks are federally regulated by the Office of the Superintendent of Financial Institutions (OSFI) and must function along with the Bank Act. Some of the financial institutions still can be regulated provincially, those as trust companies and security market activities.

Foreign bank sector meaning the world’s banks subsidiaries and representative offices account for only 10% of Canada’s bank sector assets. Typical foreign banks do not operate largely, focusing mostly on wholesale banking and higher-end commercial lending (exception Hongkong Bank of Canada) and are considered closely held and classified as Schedule II banks under the Banc Act. The foreign banks had been allowed to establish their subsidiaries in Canada since 1980. The entry of foreign well-managed and proven financial institutions is considered to be straightforward. In the recent years, the number of foreign banks in Canada is decreasing, due to the tough competition with the Big Six Banks. They, in turn, having well-established business relationships and branch networks continue to create difficulties for the foreign banks to enter the sector smoothly. 

The third part of Canada’s banking system subsists of small but nevertheless profitable and growing part of domestic banks, which account for only 2.5 % of the total assets. It includes but not limited to a subsidiary of Quebec’s Caisse Populaire movement (Laurentian Bank), a subsidiary of a life insurance Manulife Bank and Canadian Western Bank operating in British Columbia and Alberta (Schedule I).

Canadian banking system made it good through the recession thanks to economical discreet lending, efficient borrowing and risk management practices and regulatory compliance. Country’s banks are continuously rated as safe and sound, unlike a lot of financial institutions in the rest of the world and they are forecasted to grow. “Canada’s Big Six1 banks operate under a government charter, with a national presence and in various business lines. They are well capitalized, well managed and deeply entrenched in the nation’s economy, contributing significantly to its growth” – Cognizant Reports (Canadian Banking Industry: Performance and Perspectives) says.

Canadian banks can rely on the experience they received while successfully managing global financial meltdown together with the operational strategies that kept them stable during the turmoil. This helps to always maintain the consumer loyalty up to today.

The Bank of Canada – central bank

As the Central Banks Guide (2015) describes the Bank of Canada is Canadian central bank that was established in 1934 together with the Bank of Canada Act. Headquartered in Ottawa it does not offer any banking services to the public its primary responsibility as usually the country’s monetary policy and national currency issue. It is the one and only financial institution that can create and distribute the official currency. The bank controls money supply – the total amount of money in the economy and maintains the value of Canadian dollar. The central bank tries to keep the low inflation and sets short-term interest rates to prosecute the monetary policy. It also maintains the Canadian financial system and serves as a banker for the government. According to the Bank of Canada Act, the bank’s role is “to promote the economic and financial welfare of Canada”. The Bank of Canada is among the most important organisms that take care of the Canadian financial system health and stability, it has the power to provide liquidity to the financial institutions and become a lender of last resort for these institutions in case of problems in funding. The central bank is committed in national financial markets as well, taking part in FOREX, trading government securities and setting interest rates. The chief of the bank is the governor which is appointed every 7 years by the board of directors.

 

The “Big Six Banks”

1.      The National Bank of Canada

The bank has its headquarter in Montreal and is considered to be the number 6 largest commercial banks in Canada according to CFI. The NBC has spread its branches nearly through all Canadian regions and served more than 2.4 million individual clients. In 2016 it had a wide network of over 453 branches and 937 ATMs throughout the nation as well as numerous representative offices, subsidiaries and international cooperation.  The clientele includes both Canadian citizens and non-Canadians. The National Bank of Canada is separated from the Canadian Central bank and the Bank of Canada.

2.      Royal Bank of Canada (RBC)

The Royal Bank of Canada was founded in 1864, having its headquarters in Toronto it provides services for the personal and commercial banking, wealth management, insurance, investor and treasury services and capital markets. In total it serves around 16 million customers with the total income of $28 billion and total assets worth $1.2 trillion (2016 according to CFI).

3.      Toronto-Dominion Bank (TD)

Toronto-Dominion Bank provides personal and commercial banking not only in Canada but also in the United States and some other countries. It was established in 1955 and currently serves up to 11 million customers throughout 1,150 branches. The bank’s total income and total assets in 2016 (according to CFI) were worth $6.375 million and $938 billion respectively (CFI).

4.      Bank of Nova Scotia (Scotiabank)

Founded in 1832 Scotiabank has its headquarters in Ontario (Toronto). The main activities of the bank are personal and commercial banking, wealth management and corporate and investment banking. Scotiabank serves more than 23 million clients in all its 55 countries and has its total income amounted to $20.76 billion and total assets – $714.4 billion in 2016 (CFI).

5.      Bank of Montreal

The bank of Montreal, established in 1817 is also considered one of the largest banks in Canada. It mostly provides retail banking, wealth management and investment banking services. The clientele of the bank reaches 12 million customers. In 2016 the bank had its income amounted to $15.574 million and total assets up to $548 (CFI).

 

Current challenge of the Canadian financial system

The Canadian system has always had its advantageous financial system which always proved to be well-managed and reliable. However current century due to several changes in the world economies and general attitude toward globalization have brought Canadian numerous claims blaming its political agendas and policies for being confusing and conflicting and leading to the Canadian inability to handle the world’s competition.

According to Edward P. Neufeld (Adjusting to Globalization: Challenges for the Canadian Banking System), Canadian banks still did well in the second half of XX century while the external factors did not force them to open up to the foreign competition. Now with the dawn of globalization when the transportation and telecommunications became easily accessible, the banks have to adjust to the international competition and foreign entrants, otherwise, the obstacles for the future development are inevitable.  The author argues that “the ability of Canadian institutions to cope with increasing foreign competition will depend on their economic efficiency relative to that of the encroaching competitors”. To continue growing later on the Canadian financial institutions have no way but be globally competitive in both domestic market and international. However, the system does not seem to be willing to respond to it. New legislation and reforms in the financial sector contain discriminatory measures which frustrate the Canadian international competitiveness. They managed to apply the restrictions on the bank merger policy, which prevents the banks from reaching the economies of scale. The reforms also imply the constraint against the life insurance distribution through the bank branches, which restricts the competition in the domestic market right away; the total and constant elimination of banks from the car leasing services, which is highly dominated by the foreign institutions; and the threat in the bill to exclusively large Canadian banks that for not providing certain low-cost services they will be forced to provide them. The financial institution responsible for the foreign legislation reforms have already slipped down numerous important international banks causing the non-interest costs up to 20% higher than they would be with the permitted mergers. The tendency is that the power of globalization will still generate the constant increase in the foreign ownership of Canadian financial institutions and increase in non-Canadian executives running them. In Neufeld’s view, the worst weakness of the new policy is the inability to admit that soon enough the most important source of future competition will be large foreign institutions that operate directly within Canada and outside Canada through the Internet. He assumes that inevitable international merger process has the risk of being hostage by the short-term political decisions. Therefore, the concern is whether the financial institutions will manage to grow with the current policies and whether the Canadian customers will be able to access the world-class financial services they require from the foreign or local financial institutions.

 es that inevitable international merger process has the risk of being hostage by the short-term political decisions. Therefore, the concern is whether the financial institutions will manage to grow with the current policies and whether the Canadian customers will be able to access the world-class financial services they require from the foreign or local financial institutions.

 

x

Hi!
I'm Harold!

Would you like to get a custom essay? How about receiving a customized one?

Check it out