http://www.truthout.org/041109GThe Canadian financial market is a bit like the country: low-key and a little boring. Today, it is the envy of the rest of the world. Its biggest bank, the Royal Bank of Canada, is now the 11th biggest bank in the world by market capitalization.
Its market capitalization is about three times that of Citigroup and 30 percent higher than that of UBS or Credit Suisse. There are now three Canadian banks among the 30 largest in market capitalization in the world. Obviously, this is due to the fact that their American, English and Swiss counterparts' capitalization has melted away like snow in the sunshine. Of course, the Canadian banks' profits have dropped considerably, but they remain positive. Why is the Canadian financial system considered the most solid in the world at the present time?
The answer is simple: It's the result of a government that did not allow itself to be influenced by the banks and of a regulator that remained conservative
. The Canadian financial regulator has the reputation of being the most conservative among its American and European equivalents. For example, Canadian banks must hold Tier 1 capital of 7 percent of their assets (weighted by risk) and bank indebtedness may not exceed 20 times capital. The Canadian regulator is also attentive to the quality of bank capital, in particular with respect to the proportion of ordinary shares. In Switzerland, a financial regulator and an independent surveillance authority (Finma) have just been born and new rules introduced. However, the big banks' level of indebtedness is significantly more than 30 times their capital.
The second difference is in the treatment of bank mergers. As in several developed countries, Canadian banks have wanted to merge and form a few global banks to better participate in the global growth of financial markets. The Canadian government has always rejected these mergers. As elsewhere, it had to weigh up the advantages connected with greater size and presence at an international level against the costs related to a reduction of competition in the domestic market. In 1998, the Canadian Competition Bureau clearly indicated that such mergers would decrease competition for several financial products (portfolio management, credit cards, loans etc.) in a significant number of submarkets. Consequently, it indicated what disinvestments by merger participants would be necessary to compensate for those reductions in competition. The banks quickly understood that the requirements were such that, by merging, they would risk losing an important advantage in the domestic market for an uncertain share of the international financial market.