U.S. banks could make more big loans to Canadian businesses under a proposal to be considered by Canada's government.
The measure, which is expected to pass Parliament and become effective sometime in 1998, would allow foreign banks to branch into Canada without having to set up separate subsidiaries of their parent companies.
The law would allow banks to cut some operational costs and grant larger credits by using parent companies' capital. Under this new legislation, banks would not be allowed to establish branches to collect consumer deposits.
The measure, which will be offered by Doug Peters, Canada's secretary of state for finance, is expected to be introduced to Parliament before the end of the year. Because it has the support of Canada's biggest banks, it is expected to pass easily. The impetus comes from government's desire to encourage more competition among banks. Canada's six largest banks account for about 90% of the country's banking assets.
However, "it will not create a rush to open street-level offices," said Alfred Buhler, chairman and chief executive of Bank of America Canada.
Rather, Mr. Buhler, who has been one of the proponents of easing restrictions on foreign banks in Canada, said the measure would allow his company to participate as a major loan underwriter. Currently the Toronto- based BankAmerica Corp. unit is limited to participating in loans of $200 million or less. "In today's world, that's not a very large number," Mr. Buhler said.
In addition to BankAmerica, other banks with large operations in Canada include Citicorp and Mellon Bank Corp. Spokesman John M. Morris said Citicorp liked the measure because it would help the bank save on operational expenses. Citicorp was among a group of institutions lobbying for the change. "We push in all jurisdictions for modernization of banking services," Mr. Morris said.
Mellon Bank Canada has capital of $60 million, said Thomas MacMillan, its chairman and chief executive.
The two biggest advantages for Mellon, Mr. MacMillan said, would be to make bigger loans and cut down on operational costs. Mellon employs 600 people in Canada. Some of the functions could be handled through Mellon's Pittsburgh base, he added.
In addition to the large banks with subsidiaries already in place, some regional companies which operate along Canada's borders could also benefit.
Detroit-based Comerica Inc., which is across the Detroit River from Windsor, Ontario, set up a representative office in Toronto in November. It is considering whether to establish a subsidiary there similar to one it has applied to open in Mexico. In Canada, the new branching law could be another option for opening a unit, said Douglas Ransdell, senior vice president of international trade finance.
Comerica's interest in Canada is a little different from that of Citicorp, BankAmerica, or Mellon, all of which compete with the big six Canadian companies for the largest loans. Instead, Comerica is serving its midsize business customers who operate in both the United States and Canada.
Not every U.S. bank would be allowed to branch. The measure Mr. Peters is proposing would restrict branching to foreign banks that have at least $25 billion of assets.
And not every regional bank is thrilled about opportunities in Canada.
For Banc One Corp., there is no pressing need to establish a branch unless it would better serve an existing customer, said Darin Narayana, president and chief executive of Bank One International Corp.
"None of us are licking our chops about going to Canada," Mr. Narayana said. "There is no crying need. No one is now saying, 'Oh my god, I can't go into Canada.'"