Ottawa Proposes Legislative Changes to Boost Competition in Canada’s Banking Sector
The Canadian federal budget released Thursday outlines legislative changes aimed at increasing competition in the banking sector, including a new competition objective for OSFI, a one-year timeline for new bank applications, higher equity thresholds for widely held shares, and an increase in deposit insurance limits to $250,000.
Ottawa is promising legislative changes to boost competition in Canada’s banking sector in the federal budget released Thursday. The measures aim to make it easier for new financial institutions to enter the market and spur competition in an industry dominated by the Big Six banks—Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce, and National Bank of Canada—which hold more than 90-per-cent market share.
Under the proposed amendments, the government will change the law governing the Office of the Superintendent of Financial Institutions (OSFI) to add a “secondary competition objective” to its mandate. Canadian Bankers Association chief executive officer Anthony G. Ostler stated that expanding OSFI’s mandate is an important step in balancing financial stability and economic resilience. In June, OSFI superintendent Peter Routledge launched a pilot project to strip years off the process to become a bank. The new legislative amendments will establish a one-year timeline for making decisions on applications to create new banks.
The budget also seeks to allow more flexible ownership structures for smaller banks to help them grow larger. To achieve this, the threshold at which a bank’s shares must be widely held would rise from $12-billion to $25-billion in equity. Additionally, foreign bank subsidiaries with less than $8-billion in equity would be exempted from the public shareholding requirement if their parent company is widely held and listed on a recognized foreign stock exchange. The plan gives credit unions easier ways to access capital and expand their reach.
For depositors, Ottawa intends to update Canada’s deposit insurance framework by raising its limit to $250,000 from $100,000, increasing protection during periods of financial stress. The budget includes a plan to give troubled banks more “exit options” to transfer assets and liabilities during such periods.