At any stage of your investing life, it can be easy to get caught up in the investments themselves.
Behind it all, the banking systems make each investment possible by storing our money, moving it from place to place, ensuring that your mortgage loans are safe throughout the life of the loan, and there will be no unpleasant surprises.
That is why it is important to consider the safety of the banking system that supports your investments.
A strict regulatory environment, a small population of banks, and an emphasis on controlling risk are three reasons that Canada’s banking system is considered one of the safest in the world.
Out of all the 86 banks in Canada, 85% of the market share is divided up by the Big Five Banks. Here is why Canadian banks are so successful on a global scale.
After 2008 Canada won awards for banking performance. In 2008, many financial institutions in the United States and all around the world collapsed and required bailouts. But no Canadian banks failed.
Their performance through the global economic downturn was later recognized by the international media and The International Monetary Fund. In 2010, The World Economic Forum named Canada’s banking system as the soundest in the world.
Canadian regulators balance competitiveness and stability
People all around the world rely on Canada’s banking system because it is considered to be safe. One of the things that give it a reputation for safety is the regulatory oversight.
n Canada all financial institutions are regulated by the Office of the Superintendent of Financial Institutions (OFSI). The OFSI is an independent agency, not part of the Canadian Government, and it oversees banks, financial institutions, insurance companies, trust and loan companies, and private pension plans.
Another way that Canadian regulators contrast with banks in the U.S. is how the regulations work. The OFSI does not set monetary policy, but the Bank of Canada does. The Bank of Canada, however, is not a regulator. In the United States, the Fed does both things.
Quality over Quantity
One more difference that makes it simpler to regulate Canadian banks is that there are comparatively more banks in the United States. In 2021 there were 4,236 commercial banking institutions in the U.S. with over 72,000 branches. Canada has only about 80.
Canadian banks are organized into three types, Schedule I, Schedule II, and Schedule III. Schedule I are domestic banks that accept deposits and are insured by the Canadian Deposit Insurance Corporation (CDIC). Schedule II are foreign bank subsidiaries also insured by the CDIC. Schedule III is subject to restrictions because they are branches of foreign banks that are conducting business in Canada.
The top five banks have about 85% of the market share. (The top five banks in the U.S. have 47%). These banks, the “Big Five”, include the Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, and the Canadian Imperial Bank of Commerce.
The small number of big banks means that the industry is less competitive and some of the products might be more expensive. The regulatory environment in Canada favors larger institutions, but the relationship between banks and regulators is more friendly.
The international presence of Canadian banks
For example, three of the Big Five Banks (RBC, Scotiabank, and CIBC-FirstCaribbean) have a prominent presence in the Former English Caribbean Colonies. There, they have the Schedule II status of a subsidiary. As a subsidiary, these banks cannot loan money to Caribbean businesses but instead can issue debts and raise capital for governments and corporations.
Canadian banking in FECC started in the late 19th century and the early 20th century with the help of colonial ties with Britain and trade between the coastal provinces of Canada and the West Indies. Expansion of Canadian banks peaked when the islands faced a financial crisis in the 1980’s which enabled more banks to come in.
Scotiabank is the most international of all the Canadian banks. It has been doing business internationally for over 100 years, has offices in 30 countries and over 2,000 branches in North America, Europe, The Middle East, the Caribbean, Asia as well as Central and South America.
The size and stability of the big five banks compared to the population of Canada has made it possible for those banks to have a significant international presence.
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One of our strengths at BG Wealth Group is understanding the nuances of the North American banking systems and how they relate to our property investment programs. Contact us today for a 1:1 wealth-building consultation.
