Chase Manhattan Corp. and J.P. Morgan & Co. have obtained approval from Canadian regulators to branch directly into Canada, becoming the first foreign banks to benefit from recent changes in financial regulations.
John Palmer, head of the Office of the Superintendent of Financial Institutions, said in an earlier interview that nine foreign banks have applied for branch licenses and another 15 or so, including a sizeable number of U.S. banks, have expressed interest in opening branches.
Among the companies known to be seeking Canadian branch banking licenses are Mellon Bank Corp. and Credit Suisse First Boston.
Last June Canada approved legislation allowing foreign banks to branch directly into the country in an effort to increase competition in financial markets. There are limits, however; the branches are only allowed to engage in wholesale corporate banking and may not take retail deposits or deposits of less than 150,000 Canadian dollars.
Under the old rules, foreign banks were required to set up separately capitalized subsidiaries. That made it more expensive for them to operate in Canada and set limits on the amount of business they could do. As a result, many foreign banks, including Citigroup, scaled back or shut down their Canadian operations.
In an interview last month, Mr. Palmer noted that competition from foreign banks was one of the key questions dealt with in the regulatory reform approved last year by Canada's parliament. "We needed to create the conditions for more choice, more institutional choice, within the Canadian marketplace," Mr. Palmer said.
"We have one of the most concentrated and highly competitive banking systems in the world, but one with a relatively small number of players, and the government decided to make it easier for foreign institutions to come into Canada."