The Big Bank Emperors
Aren't Wearing Any Clothes...

Myths & Facts about
Canada's Big Banks and Bank Mergers

Myth #1: Canada's Big Banks aren't big enough to survive
Fact: Our Big Banks are very big, and have world-class profits
Our Big Five Banks are the largest corporations in Canada.  Each of the Big Five Banks' assets are greater than the federal government's annual revenues, and greater than the total revenues of the provinces and territories.  And four of the Big Five Banks lend more each year than the federal government spends.  Our big banks are also successful internationally, operating in over 120 countries.  On a world scale, CIBC is in the top 10 in major international finance areas; TD Bank has the 3rd largest discount brokerage; and Scotiabank is 10th in big business syndicated lending.  According to a March 1998 report by two Bank of Canada economists, profitability, not size, is the most important factor for the success of banks.  According to Fortune magazine, four of our Big Five Banks (Royal Bank, TD-Canada Trust, CIBC, and Bank of Montreal) are among the top 15 most profitable banks in the world (and are more profitable than 5 of the 10 largest banks in the world).  The facts show that our banks are very large and will likely not only survive, but also prosper.
 

Myth #2 : Our Big Banks are threatened by foreign competition
Fact: Global competition is not a threat, despite bank claims
There are now fewer (43) foreign banks in Canada than in 1987 (when there were 59) and their combined assets amount to only $92 billion (7% of total banking assets in Canada), not much compared to the $1.1 trillion in assets of Canada's Big Five Banks (86% of total assets).  Foreign banks have faced significant barriers to entering Canada for over 30 years, and continue to face barriers even after changes were made under a 1997 World Trade Organization agreement.  The costs of setting up branches, advertising, training staff, and attracting customers mean that, as former federal Finance Minister and Prime Minister Paul Martin has stated, foreign banks will never offer serious competition to our Big Banks or offer service in the vast majority of communities across Canada.
 

Myth #3 : Canada's Big Banks serve customers fairly and well
Fact: Our Big Banks treat many customers poorly
Surveys in 1996 and 1997 by the National Quality Institute of over 8,000 Canadians regarding satisfaction with 21 industries found banks ranked in the bottom 5 both years.  In addition. at least 400,000 adult Canadians do not have a bank account, mainly because banks often make it hardto open an account by requiring customers to provide many pieces of ID, to have a job or to keep a minimum amount of money in the bank.  Also, the banks' own statistics show that lending to job-creating small and medium-sized businesses decreased between 1995 and 1997.  Of the $100 billion increase in bank business lending over this 2-year period, over $80 billion was loaned to big businesses in loans of $5 million or more.  Banks loaned more to big businesses despite losing almost $200 million more during this period from big business loan defaults ($543 million lost) than from small business defaults ($371 million lost).

Myth #4 : Bank mergers will benefit Canadians
Fact: Bank mergers will hurt Canadians
If the federal government allowed four of Canada's big banks to merge into two banks, the two new megabanks would control 70% of the banking assets in Canada, a higher level of concentration than in any other G-7 country.  The megabanks would be more than twice as large as the next largest bank in Canada and would also control 75% of total small and medium-sized business lending, 80% of credit card purchases, and about 70% of consumer loans in Canada.  This concentration of market control would severely limit customer choice, and allow the megabanks to abuse their power by raising fees, cutting service, or both.  In addition, industry analysts have concluded that the mergers will lead to job losses of at least 20% of total employees (30,000 people), and closure of at least 20% of the merging banks' branches (over 1,000 branches).  Also, studies in other countries show that bank mergers lead to increases in service charges, and decreases in small business lending. Even shareholders will likely not benefit from the bank mergers.  A study by a U.S. Federal Reserve Board economist of thousands of bank mergers found that none of the mergers increased efficiency or profitability.

Myth #5 : No matter what, banks will get bigger, not better
Fact: Canadians can have better banks, not bigger banks
Federal Finance Minister Jim Flaherty and the Conservative government have the final say on whether the bank mergers will be allowed, and whether the government will enact bank accountability measures to ensure our banks meet customer and community needs across Canada.  If enough Canadians speak out, the government will stop any proposed mergers and pass bank accountability laws.  The U.S., France, Britain and Australia all have bank accountability laws requiring banks to serve all customers fairly and well, and the Canadian Community Reinvestment Coalition (CCRC) is leading a growing movement to enact similar laws in Canada.
 

Conclusion: Canada Needs Better Banks Not Bigger Banks!
The federal Bank Act is currently under review by the federal government. Write to Finance Minister Jim Flaherty and your MP and ask them to solve the problems set out above by enacting strong bank accountability measures, and by preventing bank mergers that will hurt Canadian communities, small- and medium-sized businesses and individuals.

Join Canadians across the country in the push for bank reforms. All together we can make a difference.