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Canadian Bank Mergers Decision

Finance Minister Rejects Bank Merger Proposals

Dateline: 12/14/98

It's official. Canadian Finance Minister Paul Martin has rejected the proposed mergers of the Royal Bank with the Bank of Montreal and CIBC with the Toronto-Dominion Bank.

Reasons for Bank Mergers Decision

The reasons for the bank mergers decision are no surprise. The Finance Minister concluded that the mergers are not in the public interest as they would result in

  • too much concentration of economic power in Canada in the hands of too few financial institutions
  • a reduction in competition in the Canadian financial services sector
  • a reduction in the Canadian government's flexibility to address future concerns.

The last round of reports delivered to the Minister of Finance last week appear to have sealed the decision.

Competition Bureau

Canada's Competition Bureau concluded that the proposed bank mergers would substantially lessen competition, would result in bank branches being closed, and mean that Canadians would have to pay more for less. The Competition Bureau's conclusions on each of the mergers are provided separately in letters to the bank presidents for the Bank of Montreal and Royal Bank merger and the CIBC and TD Bank merger.

Superintendent of Financial Institutions

The Office of the Superintendent of Financial Institutions (OSFI) also weighed in with concerns. A summary letter to the Minister of Finance raised issues about the impact of mergers on the Canadian financial system as a whole. It noted that if one of the merged banks were to run into trouble, the policy options for government would be severely reduced. For example, the possibility of a sale to a domestic competitor would be less, since it would result in further reducing competition. And a sale to a competitor from outside Canada would have a negative impact on Canadian ownership and control.


On the political side, both the House of Commons Finance Committee and the Senate Banking, Trade and Commerce Committee tabled their reports on the financial sector.

Future Prospects

The four banks have been using the line "the status quo is not acceptable" to push their case for mergers. Martin has turned that around to say the status quo must be changed before bank mergers are considered.

To that end, the government plans to develop a new policy framework for the financial sector in Canada. It will probably take at least a year. The new framework is expected to include a new review process for major bank merger proposals. It is likely the new process will require merger proposals to meet the same conditions though.

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