Banking System of Canada

BANKING SYSTEM OF CANADA
Banking in Canada is widely considered the most efficient and safest banking
system in the world, ranking as the world's soundest banking system according to
a 2008 World Economic Forum report According to the Department of Finance,
Canada’s banks, also called chartered banks, have over 8,000 branches and almost
18,000 automated teller machines (ATMs) across the country. In addition,
"Canada has the highest number of ABMs per capita in the world and benefits
from the highest penetration levels of electronic channels such as debit cards,
Internet banking and telephone banking".
HISTORY
Banking in Canada began to migrate in earnest from colonial overseas banking
operations to a local banking system with the founding of the Bank of Montreal in
1817. Other banks soon followed and began business and after a lengthy approval
process began unregulated banking business. These institutions issued the only
local currency notes until amendments in the British North America Act allowed
federal and provincial governments to begin to introduce their own notes starting
in 1866. Official Canadian currency took the form of the Canadian dollar in 1871,
overriding the currency of individual banks. The establishment of the Bank of
Canada in 1935 was also an important milestone in banking and monetary
governance.
Despite various loss events (such as the Latin American debt crisis, the collapse of
Olympia and York, Enron-related liabilities, and the U.S. Subprime mortgage
crisis), the big five banks have thus far proven to be safe and stable companies.
For example, in securities prospectuses the Royal Bank of Canada says it has paid
a common share dividend in every year since 1870, the year after it received its
banking charter.
According to the Department of Finance, two small regional banks failed in the
mid-1980s, the only such failures since 1923, which is the year Home Bank failed.
There were no bank failures during the Great Depression.
Recent History
In the 1980s and 1990s, the largest banks acquired almost all significant trust and
brokerage companies in Canada. They also started their own mutual fund and
insurance businesses. As a result, Canadian banks broadened out to become
supermarkets of financial services.
After large bank mergers were ruled out by the federal government, some
Canadian banks turned to international expansion, particularly in various U.S.
markets such as banking and brokerage.
Two other notable developments in Canadian banking were the launch of ING
Bank of Canada (which relies mostly on a branchless banking model), and the
slow emergence of non-bank mortgage origination companies.
A survey conducted by the World Economic Forum called the Global
Competitiveness Report of twelve-thousand corporate executives, in 2008,
concluded that Canada has the best banking system in the world, receiving a score
of 6.8 out of possible seven.
CANADIAN BANKS
In everyday commerce, the banks in Canada are generally referred to in two

categories: 1) the five large national banks and 2) smaller second tier banks
(notwithstanding that a large national bank and a smaller second tier bank may
share the same legal status and regulatory classification.
The five largest banks in Canada are:
 (RBC)Royal Bank of Canada,

 (TD CANADA TRUST)Toronto Dominion Bank,
 (BMO)Bank of Montreal,
 (BNS)Bank of Nova Scotia, and
 (CIBC)Canadian Imperial Bank of Commerce.
Notable second tier banks include the National Bank of Canada, the Desjardins
(technically not a bank but an alliance of credit unions), HSBC Bank Canada, and
ING Bank of Canada. These second tier organizations are largely Canadian
domestic banking organizations. Insurance companies in Canada have also created
deposit-taking bank subsidiaries.
The "Big Five" Banks

Unlike the smaller Canadian banks, the Big Five are not just Canadian banks, but
are instead better described as international financial conglomerates, each with a
large Canadian banking division. In fiscal 2007, RBC's Canadian segment called
"Personal Financial Services" (the segment most related to what was traditionally
thought of as retail banking) had revenue of only CAD$5,082 million (or 22.6%)
of a total revenue of CAD$22,462 million. Canadian retail operations of the Big
Five comprise other activities that do not need to be operated from a regulated
bank. These other activities include mutual funds, insurance, credit cards, and
brokerage activities. In addition, they have large international subsidiaries. The
Canadian banking operations of the Big Five are largely conducted out of each
parent company, unlike U.S. banks that use a holding company structure to hold
their primary retail banking subsidiaries.
REGULATIONS
Canada's federal government has sole jurisdiction for banks according to the
Canadian Constitution, specifically Section 91(15) of The Constitution Act, 1867 ,
formerly known as the British North America Act, 1867. Meanwhile, credit
unions, securities dealers and mutual funds are largely regulated by provincial
governments.
The main federal statute for the incorporation and regulation of banks, or
chartered banks, is the Bank Act (S.C. 1991), where Schedules I, II and III of this
Act list all banks permitted to operate in Canada under these three distinct
categories:
 Schedule I: Banks allowed to accept deposits and which are NOT

subsidiaries of a foreign bank. Examples include "The Big Five" banks (as
mentioned above) and smaller second tier banks such as National Bank of
Canada, Laurentian Bank of Canada and Canadian Western Bank. Because
the Schedule I banks are not subsidiaries of any foreign bank, they are the
true domestic banks and are the only banks allowed to receive, hold and
enforce a special security interest described and provided for under the
Bank Act and known to Canadian lawyers and bankers as the "Bank Act
security".
 Schedule II: Banks allowed accepting deposits and which are subsidiaries of
a foreign bank. Examples include AMEX Bank of Canada, Citibank
Canada, HSBC Bank Canada, ING Bank of Canada and ICICI Bank
Canada. Like the Schedule I banks, the Schedule II banks are incorporated
under the Bank Act.
 Schedule III: Foreign banks permitted to carry on business in Canada.
Examples include Bank of America, Capital One, Credit Suisse and
Deutsche Bank AG. Unlike the Schedule I and Schedule II banks, the
Schedule III banks are NOT incorporated under the Bank Act and they
operate in Canada, usually within the country's largest cities (being
Toronto, Montreal and Vancouver), under certain restrictions mentioned in
the Act.
The bank regulator is the Office of the Superintendent of Financial Institutions
(best known as OSFI), who’s authority stems from the Bank Act. The financial
groups are also governed by regulatory bodies (bank regulators, securities
regulators, insurance regulators, etc.) in each country they operate in.
So to sum up its not wrong if we say that Canada has one of the best, soundest
and the safest banking system in the whole world. It can be proven by looking at
their financial records for 2009. In this recent recession when banks all over the
world were filing for bankruptcies or running huge losses, these Canadian banks
were still showing millions of dollars in profits. For this reason Canadian banks
are also considered among blue chip or recession proof companies.

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BANKING SYSTEM OF CANADA

In everyday commerce, the banks in Canada are generally referred to in two

 (RBC)Royal Bank of Canada,

The "Big Five" Banks

 Schedule I: Banks allowed to accept deposits and which are NOT

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