Institute for Public Affairs of Montreal
A Citizens Agenda of Better Banks--Not a Corporate Agenda of Bigger Banks

Canadian Community Reinvestment Coalition
Toronto 13.December.2002  

Like a tidal wave, the proposed Bank mergers appear unstoppable.

It’s not hard to see why. We’re talking about Canada’s most powerful economic players. The banks have huge assets. Think of how enormous the federal government is. Yet each of the Big Five banks are bigger, in terms of assets, than the federal government’s annual budget. Three of the Big Five lend more money each year than the federal government spends.

If the proposed mergers go ahead, the two new megabanks will be colossal, controlling over 70% of the country’s banking assets. That’s a frightening prospect, considering their poor record in customer service, such as small business lending and service fees.

The devastating impact of the proposed mergers on jobs has been called “a dirty little secret.” Scotiabank and National Bank CEOs, joined by bank industry analysts, estimate that up to 65,000 people could lose their jobs if the mergers proceed, as local branches are shut down.

The banks’ power makes it easy to despair that anything can be done to stop the proposed mergers. Media coverage has reinforced this view. The Star’s Richard Gwyn, for instance, claims that “the deals are done. All the politicians can do, even a powerful one like the Finance Minister, is hope to extract a few local concessions”, says Gwyn. “The era of big, self-regulating corporations is upon us.” 

But is it  true that we can do nothing in the face of corporate power?

The evidence suggests that organized citizens’ movements can  have a dramatic impact, even when dealing with banks.

In the 1970s, U.S. citizens mobilized against discrimination by banks against low-income communities and won passage of a landmark bill called the Community Reinvestment Act (CRA). U.S. consumers have benefited for more than 20 years from laws which require detailed disclosure and review of whether banks are serving local communities adequately. If a bank is not performing well, regulators can deny any proposed expansion, merger or takeover of another financial institution.

For example when the Bank of Montreal’s subsidiary, Harris Bank of Chicago, wanted to buy another Illinois bank in 1992, the takeover was stopped because Harris Bank had a poor lending and service record, as revealed under a CRA review. Harris was also required to take corrective action. It pledged $327 million in credit and assistance over five years for affordable housing and small business loans and to meet other needs in Chicago communities. Other U.S. bank mergers have been stopped for similar reasons.

Pressure on the Liberal Government to approve the deals is enormous. Yet we need to remind ourselves of one  basic fact.  The banks have provided no evidence that their proposed mergers will benefit their customers, while the evidence of negative impacts from bank mergers in other countries is extensive. The bank accountability coalition has now grown to include 77 organizations representing well over three million Canadians.

We can help shape the future of Canada’s banking industry. We must not succumb to the feeling that the proposed mergers are “done deals”, waiting to be rubber-stamped by government.

And we have a responsibility not only to oppose, but to propose. Our opposition to banks becoming bigger should be accompanied by advocacy of measures to ensure banks become better, in terms of serving all Canadians fairly. It’s about time our federal government  enacted laws to benefit Canadian financial consumers and communities, similar to those enacted by the U.S. government over 20 years ago.

The merger-seeking banks are asking for something from Canadians which they would never grant to their own customers, namely a blank cheque. That's what the banks' merger proposals boil down to. Trust us. Take the leap of faith. Let us merge so we can fight off those threatening foreign banks. You will get better service, more jobs in the long term, no loss of bank branches in rural and poorer communities.

Their commitments sound good, but we don't have a system that ensures there is no gap between bank rhetoric and reality. In other words, if the federal government approves the mergers, there is nothing to stop the merged banks from telling Canadians that cost pressures from competitors require closure of hundreds of bank branches and thousands of lost jobs.

Can we believe claims that the mergers will improve banking service, when major banks have steadfastly refused to accept proposals for service improvements? They oppose establishment of an independent banking ombudsman to address customer complaints (current bank ombudsmen were selected and are directed by the banks, and can't make binding rulings).

The banks also oppose another proposal that would greatly benefit customers, namely participating in the establishment of a Financial Consumer Organization (FCO) to advise bank customers. The banks have been asked to facilitate creation of an FCO by including an FCO flyer in their customer mailings, but have refused.

And the banks' exaggeration of the foreign competition threat makes it likely they will break their promises on local branches and jobs, if they get their way. There are fewer foreign banks operating in Canada now (43) than in 1987 (59), with a lower market share, only 7% of total bank assets in Canada. Foreign banks continue to face significant barriers to setting up in Canada, so it is highly unlikely that they will ever provide significant competition to our big banks.

As in the U.S., the government should enact legislation to allow for a detailed review of banking performance. The U.S. Community Reinvestment Act (CRA), enacted over 20 years ago, allows the public to find out detailed information about how banks are serving customers, such as how many people apply for loans, how many are rejected and why. If this review reveals poor service, a bank's application to merge or take over another institution can be denied.

To their credit, Canadian bank CEOs have shown a growing willingness to agree to CRA-style measures. But until these and other accountability measures are in place, we lack key information and a process to fully assess service standards and changes in banking. The citizens’ agenda of better banks must come before the corporate agenda of bigger banks.