Bank mergers won’t hurt capital markets, says IDA boss

(February 4, 2003) Bank mergers will not have a detrimental effect on Canada’s capital markets and may actually increase competition in the financial services industry, says Joe Oliver, president of the Investment Dealers Association. In an address today in Ottawa, Oliver stopped short of endorsing mergers, noting that public interest issues still must be addressed.

“The IDA does not expect bank mergers to negatively alter the competitive environment,” Oliver said today in the text of a presentation to the House of Commons Standing Committee on Finance, which is hearing evidence on mergers.

“Arguably, the merger of banks would set in train a dynamic that would spur the growth of mid-tier independent firms, with added competition and new players to meet the financial needs of small- and medium-sized business,” Oliver said.

Larger Canadian banks would offer a number of advantages, Oliver said, including a wider range of investment products, new jobs, a stronger capital base and cost efficiencies.

“Size matters in international banking,” he said. “Bank mergers may be required to facilitate top-tier Canadian financial institutions capable of competing for new international business against the largest banks from around the world.”

Oliver noted that although bank-owned dealers currently dominate the securities business, controlling 60% of the wealth management market, mergers could “unleash a dynamic that would encourage competition, a process that would over time reduce the market share of banks.”

Still, there are concerns about mergers, Oliver added, pointing to worries about the solvency and viability of merged entities and public interest considerations, such as access to banking services, especially in small towns and rural areas.

The Commons committee has been charged with the task of clarifying Ottawa’s guidelines regarding bank mergers, with a specific focus on public interest issues. A number of proposed mergers have reportedly been blocked by the federal government. Most recently, plans by Bank of Montreal and Scotiabank to join forces were shelved following a negative response from the prime minister’s office.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca