Bank merger review guidelines are mostly finalized, and public, but are weak
In fact, contrary to the claim made in the Globe and Mail's editorial ("Get back to the bank mergers" - July 3), almost all of the federal government's terms for approval of bank mergers were established years ago.
The federal Competition Act makes it illegal for any company to have more than 35 percent of the customers in any local area across the country. The two bank mergers proposed in 1998 were prohibited because they would have created two megabanks that would have dominated many communities and neighbourhoods across the country (To see the CCRC's analysis of the Competition Bureau's 1998 review of the proposed mergers, click here).
The federal Office of the Superintendent of Financial Institutions (OSFI) also reviews proposed mergers under its regulations to ensure that the creation of megabank won't endanger the entire financial system if it went bankrupt for any reason.
Further, in 1999, the federal government established bank merger review guidelines requiring banks to make public a Public Interest Impact Assessment (PIIA) of any proposed merger that sets out the costs and benefits including impacts on financing for small- and medium-sized businesses, jobs, technology, solvency and international competitiveness, as well as proposed branch closures, service delivery changes and changes to lessen negative impacts of the merger.
Under the guidelines, a parliamentary committee reviews the PIIA and conducts public hearings and reports to the Minister of Finance, who has final approval depending on the competition and OSFI analyses, and who can set out conditions the two banks would have to meet.
The guidelines can be seen at: http://www.fin.gc.ca/finserv/docs/finserv2e.html#Merger
Any two Canadian banks can, in secret, propose a merger to the Minister of Finance to find out the conditions that the government would likely impose.
The editorial claims that an overall increase in Canada between 1997 and 2004 of 500 financial institution branches, along with a 30 percent increase in bank machines, means that more competition now exists and so mergers should now be permitted. However, these general statistics are meaningless -- an analysis of which financial institutions or companies own those branches and machines, and where each is located, is needed to determine whether competition has actually increased in local areas (To see details about what this analysis should include, click here)
It is very important to remember that bank machines owned by non-banks do not compete with the banks -- they are partners that facilitate access to bank accounts for a fee that partly goes to the bank (similarly, gas stations do not compete with oil and gas companies and refineries, they only facilitate access to gas).
The editorial also claims that competition could be increased by opening the Canadian market to foreign banks. The Canadian market has been open since 1997, when foreign banks were given permission to set up as many branches as they want in Canada. They haven't done so because Canada's big banks already have all the best locations, and they are not willing to pay the costs of trying to woo customers away.
Finally, the editorial also claims (without providing even a shred of evidence) that consumers are more ready for bank mergers than the federal government thinks. Actually, consumers were not alone in opposing the mergers proposed in 1997. All but the largest Canadian companies were also opposed, as they realized that fewer Canadian banks would mean fewer lenders to choose from and that would increase their costs of borrowing money (To see the CCRC's position paper describing the bank accountability system, and merger and takeover review process, that Canada should have, click here).
One can only hope, if and when bank mergers are proposed again, that the Globe and Mail will publish more factual, accurate and balanced assessments of the impacts of such mergers (if only to comply with the fundamental journalistic principles of accuracy and fairness).
Copyright 2007 Canadian Community Reinvestment Coalition