CIBC, left, and TD Bank at the intersection of King Street West and Bay Street in Toronto’s Financial District, on Sept 24, 2024.Fred Lum/The Globe and Mail
In a federal election campaign marked by the threat of U.S. President Donald Trump’s trade war, the two main parties competing to lead the next government have largely neglected the intensifying debate over waning competition and innovation in the country’s banking sector.
In recent years, mounting regulatory pressures and delays to key infrastructure have prompted questions over whether the country’s banks could keep pace with global competitors. As Canada’s productivity declines and economic growth slows, critics say the country’s apathy toward change in the banking industry risks further burdening consumers and businesses as the threat of a recession looms.
Under former prime minister Justin Trudeau, the federal government proposed and implemented several policies to address gaps in financial services. But when Mark Carney’s Liberals released their election platform last week, banking regulation was missing from the discussion.
On Tuesday, the platform launched by Pierre Poilievre’s Conservatives proposed a review of federally regulated oligopolies to identify ways to increase competition and lower costs.
“This is an election that’s been overshadowed by our future relationship with the United States,” EQ Bank chief executive officer Andrew Moor said in an interview,
“Setting the scene for [the banking industry] to evolve in a way that will be the most productive it can be over the next 20 years is really important. If you create the right sort of incentives for everybody, then we’ll drive a more productive economy.”
Canada’s big six banks – which include Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Canada and National Bank of Canada – are often criticized for dominating the financial-services market.
National Bank chief executive officer Laurent Ferreira said that Canada’s concentrated banking sector has helped keep the financial system stable from economic crisis, such as the 2008 financial crisis.
“An oligopoly is actually a good thing for our country,” Mr. Ferreira said in an interview after the bank’s annual shareholder meeting Thursday.
“When there is a crisis, we’re all at the table. So is the minister of finance and the governor of the central bank. You can get the CEOs of all the banks in a room within 30 minutes. Try that with Wall Street. I don’t think you would have the same.”
Banks have been under greater scrutiny by Ottawa in recent years. In the previous federal election in 2021, the Liberal platform included promises to increase taxes for banks and insurers, prevent “predatory” sales practices and establish a single ombudsperson to manage bank customer complaints. They also committed to launching an open banking regime by 2023 and upgrading Canada’s payments technology.
Among the initiatives launched under Mr. Trudeau, the government did lower certain fees for bank customers and levied taxes that extracted billions of dollars from the industry.
The Canadian Bankers Association called out Ottawa for ignoring warnings that the government’s moves would dampen lending and profit growth. Analysts said regulatory and policy pressures are among the biggest threats to growth among the country’s biggest banks.
In another attempt to address concerns over Canada’s financial sector, the Finance Ministry launched a competition review in late 2023 as RBC, the country’s largest lender, was preparing to close its takeover of HSBC Bank Canada.
In March 2024, EQ Bank – which is Canada’s seventh-largest lender and calls itself “Canada’s challenger bank” – submitted a report for the ministry’s review with several recommendations to bolster competition in the financial-services sector.
The digital bank’s proposals include adjusting the mandate of the banking regulator, the Office of the Superintendent of Financial Institutions, to include fostering a more-competitive banking industry, allowing better access to funding sources for small banks, enhancing payments infrastructure and launching an open-banking regime.
More than a year later, Mr. Moor says that EQ Bank has not received a response from the Finance Ministry or any inquiries regarding its recommendations.
In an e-mail statement, Department of Finance spokesperson Marie-France Faucher said that the ministry has met with a “range of stakeholders” to discuss their submissions and determine the next phase of the review process.
The long-awaited implementation of an open-banking system – which the federal government dubbed “consumer-driven banking” – has hit several delays. Proponents of open banking say the rules would provide consumers with more control over how they share their financial data, making it easier for them to switch banks.
Rather than adding regulation to the banking sector, Mr. Moor said that the next government should provide customers and businesses with more options. Enhancements such as open banking and the Real-Time Rail (RTR) project – a new system that would allow payments to be sent and received instantly – would more effectively boost competition.
The Conservative platform includes a promise to implement open banking to improve competition and lower costs for consumers.
The Liberals did not include open banking or any other related initiatives in their platform, but Mr. Carney was an advocate of the regime’s implementation in Britain when he was the governor of the Bank of England.
“We’ve been talking about open banking since 2018. Here we are seven years later and all we’ve done is talk,” Mr. Moor said.
“I don’t think there’s been enough pressure on these issues on both sides of the house,” he added, referring to the federal political parties.
While details on the candidates’ perspectives on the banking sector this election are sparse, Mr. Ferreira said geopolitical issues are causing the greatest threat to economic growth and should take priority.
He said that the government should reduce red tape to build energy infrastructure, including overhauling the emissions cap and resource-project assessment requirements.
“We have a very strong banking industry, a strong regulatory environment, and we’re well-capitalized,” Mr. Ferreira said.
“What we need to focus on is the real economy. It’s our natural resources, energy, our manufacturing sector – that is where we need to spend our time and we need to address the issues there. That’s where we need investments.”