Institute for Public Affairs of Montreal
The Bank Emperors Aren't Wearing Any Clothes

Straight Talk On<br>Bank Mergers
Beryl P. Wajsman 3 September 2004  

“A baited banker thus desponds,

From his own hand foresees his fall,

They have his soul, who have his bonds;

‘Tis like the writing on the wall.”

~ Jonathan Swift, “The Run Upon the Bankers”


Industry Minister David Emerson’s comments this week supporting bank mergers should concern every Canadian. Liberalism, the small “l” kind that really counts, is based on expansion of opportunity and just consideration for all. It should never be a cloak to protect the strong against the weak nor exploiter against victim. Privilege and preference have no place in this tent.


Canadian banks, even more than their American cousins, are notoriously non-competitive. While offering little advantage to the working men and women of this country, they have ripped and torn egregious profits through the imposition of outrageous fee structures.  They cozy up to their “A” list friends but supply little credit to the small businesspeople of this land who account for eighty per cent of new job creation.

They claim the need for consolidation in order to maintain their competitiveness in the global marketplace, yet shield themselves from that very competition in Canada by opposing every substantive attempt at revision of our Bank Act which is the oldest such operative legislation in the industrialized west. They shut branches in poor areas of this country so that they can concentrate on “wealth management” in “profit centres”, but do not even have the obligation, as banks do in the U.S., of community re-investment.


They paint “user-friendly” portraits in advertising, yet march in lock-step with each other on every issue including interest rates. They wanted to merge with insurance companies in order to create more accessible “vertically integrated” financial “supermarkets” for the average consumer, yet that has only resulted in the groaning expansion of multi-billion dollar tax-free reserves used for their own investment purposes.


Bank policies have become impenetrable barriers to the progress of a national agenda of social justice. At a time when even welfare recipients need a bank account to cash a cheque, banks have made opening accounts a lengthy, burdensome, credit prosecution. Instead of responsibly facilitating the necessary availability of resources for upward mobility, they encourage a culture of debt creation and credit addiction. While clients slavishly expose their most sensitive personal information to bank operatives who promise relationships of trust, that trust is breached daily as banks make that information available to all levels of government in violation of the most basic privacy protections.

This is a big brother combination of Orwellian proportions. Banks have become utilities and should be treated as such.

Canada's big banks say they aren't big enough to survive. In fact they are very big and have world-class profits. Each of the largest banks' assets are greater than the federal government's annual revenues, and greater than the total revenues of the provinces and territories. And three of the four biggest banks lend more each year than the federal government spends.

Our big banks are also successful internationally, operating in over 120 countries. On a world scale, CIBC is in the top 10 in major international finance areas; TD Canada Trust has the 3rd largest discount brokerage; and Scotiabank is 10th in big business syndicated lending. According to a March 1998 report by two Bank of Canada economists, profitability, not size, is the most important factor for the success of banks. According to Fortune magazine, three of our biggest five banks (Royal Bank, CIBC, and Bank of Montreal) are among the top 15 most profitable banks in the world (and are more profitable than 5 of the 10 largest banks in the world).

Our big banks say they are threatened by foreign competition. Yet there are now fewer (43) foreign banks in Canada than in 1987 (when there were 59) and their combined assets amount to only $92 billion (7% of total banking assets in Canada), not much compared to the $1.1 trillion in assets of Canada's five biggest banks (86% of total assets). Foreign banks have faced significant barriers to entering Canada for over 30 years, and will continue to face barriers even after changes are made under the World Trade Organization agreement. As Finance Minister, Paul Martin himself stated that foreign banks will never offer serious competition to our banks or offer service in the vast majority of communities across Canada.

The banks say mergers will benefit Canadians. In fact they will hurt Canadians. If the banks were allowed to merge as they wish the new megabanks would control 70% of the banking assets in Canada, a higher level of concentration than in any other G-7 country. The megabanks would also control 75% of total small and medium-sized business lending, 80% of credit card purchases, 70% of the Canadian discount brokerage market, and 72% of consumer loans in Canada. This concentration of market control would severely limit customer choice, and allow the megabanks to abuse their power by raising fees and cutting services as they have been doing for years.

In addition, industry analysts have concluded that the mergers will lead to job losses of at least 20% of total employees (30,000 people), and closure of at least 20% of the merging banks' branches (over 1,000 branches). Also, studies in other countries show that bank mergers lead to increases in service charges, and decreases in small business lending. Even shareholders will likely not benefit from the bank mergers. A study by a U.S. Federal Reserve Board economist of thousands of bank mergers found that none of the mergers increased efficiency or profitability.

We have a responsibility not only to oppose, but to propose. We must press the advocacy of measures to ensure banks become better, serving all Canadians fairly, not just bigger. Many of these measures were enacted by the U.S. government over 20 years ago.

Canadians need an independent banking ombudsman office with teeth. Today’s bank ombudsmen are selected and directed by the banks, and can't make binding rulings.

We need  the establishment of a Financial Consumer Organization (FCO) to advise bank customers of their rights and this FCO must have the active, not grudging, participation of the banks. The banks have been asked to voluntarily facilitate creation of an FCO by including an FCO flyer in their customer mailings, but have refused.

Most importantly we need a Community Reinvestment Act (CRA) similar to that passed over 20 years ago in the United States. Such legislation would prevent wholesale closures of bank branches in underprivileged areas, such as the seven shut over the past few years in Cote des Neiges, without commensurate compensatory services being provided. It would also provide for re-investment into the community of 15-20% of savings generated by such closures. A CRA would  allow the public to find out detailed information about how banks are serving customers, including how many people apply for loans, how many are rejected and why. This would provide critically needed oversight to protect against current racial and financial profiling prejudices imbedded into our credit system  in addition to  ensuring that Canadians’ personnel information is kept confidential.

Financial institutions in this country have operated with virtual impunity since passage of the Bank Act in 1895. From those to whom much is given, much must be required. Banks must become better corporate citizens and held to a higher standard. We must not issue a blank cheque on mergers. Mergers are not unstoppable tidal waves. Their devastating impact is Canada’s dirty little secret. They will usher in an era of self-regulating corporate behemoths.