Canadian Finance Minister John Manley told the five largest banks in Canada –RBC, Bank of Montreal, Bank of Nova Scotia, Toronto Dominion and the Canadian Imperial Bank of Commerce –on Monday this week that they any plans for further consolidation between them or between them and insurance companies must be postponed until September 2004. Effectively, this means no mergers can occur until 2005 at the earliest.
“We need to address these issues to ensure that policies for the financial services sector are clear and that the public interest is protected,” Manley told a news conference. In the meantime, there will be further public consultation on the issue. Canadian banks are keen to consolidate in order to strengthen their international position, but business and consumer groups fear bank mergers will lead to branch closures, job cuts, higher fees and lack of credit.
There was considerable controversy in 1998 when Royal Bank of Canada sought to merge with smaller rival Bank of Montreal. Toronto-Dominion Bank and Canadian Imperial Bank of Commerce hatched a rival merger plan. Both mergers were blocked by then-finance minister, who introduced guidelines governing mergers among large banks, defined as those with more than C$5 billion in equity. The government retained the power to block mergers
Banks and insurers have since pressed for the ban to be lifted, and two parliamentary committees have this year delivered reports on the issue. A Senate report late last year endorsed mergers, but a House of Commons report, released in late March, said mergers must maintain customer services without raising prices, minimize job losses, maintain loan access for small and medium-sized businesses, and guarantee existing services for rural communities.
In the autumn of 2002 Bank of Nova Scotia and Bank of Montreal privately sought government approval to merge, which was refused. Manulife Financial, the insurer, also proposed a takeover of CIBC, which was turned down.
The decision to postpone further consideration until September next year also means decisions will be taken after the current prime minister, Jean Chretien, has stepped down in February next year. Manley is a candidate to succeed him in the party election process this November.