Montréal, le 20 juin 1998
Numéro 14
 
(page 6) 
 
 
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     « When people are free to do as they please, they usually imitate each other. »  
 
Eric Hoffer
 
  
  
 
MUSINGS BY MADDOCKS
 
WHO CAN WE BANK ON?
 
 by Ralph Maddocks
  
  
          A few weeks ago, in another forum, I touched on the prospect of the $476 billion merger between the Bank of Montreal and the Royal Bank, an event which invigorated our national sport of bank bashing. It has since been followed by the announcement of another potential merger between the CIBC and the Toronto Dominion, a union valued at $460 billions. Both unimaginably large numbers. 
  
          In terms of size, the Roy/Mo bank merger would make it the ninth largest in North America and the CIBC/TD merger would become the tenth largest. Both will still be headquartered in Canada, pay most of their taxes here, and have most of their employees here. One difference between US law in this area is the Riegle-O'Neil Act which doesn't permit any US bank to hold more than 10% of the nation's bank deposits or 30% of those in any one state. This latest merger would mean that the two new merged banks would control about 70%, each about 35%, of all banking assets in Canada; the so-called Big Six becoming the Very Big Two and the Diminutive Deux! 
Awful capitalist behavior 
  
         Predictably the left and some pinker centrists, having caught their collective breath again, have been calling for an immediate stop to this awful capitalist behavior. Some are afraid that competition will disappear, some that small business will be denied loans and have nowhere else to go, some that fees may increase and some that there will be massive layoffs of clerical staff, yet others fear that their local bank may disappear. Some or all of these fears may well be realized if the mergers are indeed approved and foreign banks continue to be discouraged from starting up here. However, many see all this as a splendid opportunity to expand their businesses, most especially the western-based credit unions. Retail stores are also entering the banking field. 
  
          The century old, regulatory policy of the federal government has resulted in making it very difficult for a foreign bank to begin operations in this country, a policy which has been supported by the banks since the 1880's. This cosy relationship between the banks and the government has resulted in many potential banks being kept out, or has at least restricted them in their operations if somehow they managed to come in. The laws and regulations were designed to make it hard to do business and to protect Canadian banks while in effect keeping the competition out. As another commentator remarked, « ...bank officials and bureaucrats fill their reform agendas with calls for “ level playing fields ” and nit-picking clause-by-clause deconstructions of one another's recommendations. » 
  
          The chairman of the Toronto Dominion Bank has commented that « In a world of increasing consolidation, size can arguably be an important defense. It may well be that the smaller players will excel but there is no guarantee. » That remark, coming from an executive whose bank posted superior performance in recent times, is very interesting. Another chairman of one of the banks intending to merge commented that he and his intended partner were both overcome by the realization that their organizations fitted together so perfectly. One might be forgiven for wondering why it took well over a hundred years to arrive at this conclusion. 
  
The key is more competition 
  
          Many of the complaints which are made, whether they are about service, shortened opening times, card-swallowing automatic teller machines, excessive salaries, gigantic profits or whatever will largely disappear if competition is allowed to flourish. With proper competition, people will be in a position to refuse to go along with the charges and service levels offered by their present banks. The key to allowing the mergers to proceed is to introduce more competition; and if the people studying all this understand free market principles they will recommend just that. 
  
          Our Finance Minister who claims to have not known about the mergers in advance gives the impression of being somewhat annoyed by it all, and has made statements about vetoing the mergers if he isn't convinced that they are of benefit to consumers, employees and the economy. However, it must be considered that this could be political posturing on behalf of the left wing of the Liberal Party. The bank chairmen hope so anyway. If Paul Martin is to achieve his ambition to become Prime Minister of Canada he must keep this group on side. The Party will also have to consider that while the rural population is only around 10% of the vote, it has a disproportionately loud political voice. So while refusing to agree to the merger may be a shrewd political decision it may well not be of benefit to Canada in the long run. Of course one has to believe that our politicians have the best interests of the voters and the country at heart! 
  
          If an incoming large US bank such as that resulting from the planned merger of NationsBank and BankAmerica Corp. is able to enter Canada it may not open up retail branch offices in Abercorn (Pop. 335) or Brome (Pop. 303). Nevertheless, there will be nothing to stop them installing ATMs there and around the provinces, and the telephone lines will connect you to them just as easily as to a Canadian bank and possibly at a lower cost. 
 
 
 
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