Canada's Finance Ministry on Friday reaffirmed its determination to keep foreign banks from taking control of Canadian banks and to limit deregulation of domestic financial services companies.
Foreign banks are allowed to establish separately capitalized subsidiaries, but they are not permitted to take control of a large Canadian bank. The proposals would not change that, although they would double to 20% the stake any single investor-including a foreign bank-could hold in the largest Canadian banks.
Foreign banks may enter Canada by setting up banking subsidiaries, and it is expected that by next year foreign banks will be allowed to branch directly into Canada. But the new proposals still would not allow a foreign bank to control a large Canadian bank.
The proposed 20% limit also would prevent Canada's biggest banks from merging with one another. This was in line with previous policy. In December, the finance ministry killed a proposal by Royal Bank of Canada to merge with Bank of Montreal and scuttled a proposed merger between Canadian Imperial Bank of Commerce and Toronto-Dominion Bank. The four are Canada's largest banks.
Finance Minister Paul Martin said he remains strongly opposed to increasing the ownership limit to more than 20% and to allowing foreign investors to gain greater ownership of Canadian financial services companies.
"We continue to believe that allowing a single party or group of investors to control a large bank is contrary to sound, prudent practices," news agencies quoted Mr. Martin as saying.
Despite pressure from the banks for greater powers outside traditional banking, the proposals would continue to bar banks from selling insurance or engaging in automotive leasing through branches.
Analysts said the proposals did little to help banks in their competition with nonbanks.
"I see nothing in the proposal that would be of significant help to the banks," said A. Roy Palmer, a Canadian banking analyst at TD Securities Inc. in Toronto.
"Basically, when the ministry talks about more competition, it means more competition for banks," as opposed to making banks more competitive with other financial services companies.
The latest proposals are to be worked into legislation this summer as part of a reform bill heading to Canada's parliament in the fall.