Canada began to migrate in earnest from colonial overseas banking operations
to a local banking system with the founding of the
Bank of Montreal in 1817.
Other banks soon followed and began business and after a lengthy approval
process began unregulated banking business. These institutions issued the
only local currency notes until amendments in the British North America Act
allowed federal and provincial governments to begin to introduce their own
notes starting in 1866. Official Canadian currency took the form of the
Canadian dollar in 1871, overriding the currency of individual banks. The
establishment of the
Bank of Canada
in 1935 was also an important milestone
in banking and monetary governance.
Banking in Canada is widely considered the most efficient and safest banking
system in the world, ranking as the world's soundest banking system for the
past three years according to reports by the World Economic Forum. Released
at October 2010, Global Finance magazine put
Royal Bank of Canada
10 among the world's safest bank and
at number 15.
According to the Department of Finance, Canada’s banks, also called
chartered banks, have over 8,000 branches and almost 18,000 automated
banking machines (ATMs) across the country.
In addition, 'Canada has the highest number of ABMs per capita in the world
and benefits from the highest penetration levels of electronic channels such
as debit cards, Internet banking and telephone banking'. In the 1980s and
1990s, the largest banks acquired almost all significant trust and brokerage
companies in Canada. They also started their own mutual fund and insurance
businesses. As a result, Canadian banks broadened out to become supermarkets
of financial services.
After large bank mergers were ruled out by the federal government, some
Canadian banks turned to international expansion, particularly in various
U.S. markets such as banking and brokerage. Two other notable developments
in Canadian banking were the launch of ING Bank of Canada (which relies
mostly on a branchless banking model), and the slow emergence of non-bank
mortgage origination companies.
The main federal statute for
the incorporation and regulation of banks, or chartered banks, is the Bank
Act (S.C. 1991, c.46), where Schedules I, II and III of this Act list all
banks permitted to operate in Canada under these three distinct
Schedule I: Banks allowed to accept deposits and which are NOT
subsidiaries of a foreign bank. Examples include 'The Big Five' banks (as
mentioned above) and smaller second tier banks such as
National Bank of
Laurentian Bank of Canada,
President's Choice Financial and
Canadian Western Bank.
Because the Schedule I banks are not subsidiaries
of any foreign bank, they are the true domestic banks and are the only
banks allowed to receive, hold and enforce a special security interest
described and provided for under the Bank Act and known to Canadian
lawyers and bankers as the 'Bank Act security'. There are 22 domestic
banks as of October, 2010.
Schedule II: Banks allowed to accept deposits and which are
subsidiaries of a foreign bank. Examples include
AMEX Bank of Canada,
HSBC Bank Canada,
ING Bank of Canada and
Like the Schedule I banks, the Schedule II banks are incorporated
under the Bank Act. As of October 2010, there were 25 of these banks in
Canada, however 4 are in liquidation.
Schedule III: Foreign banks permitted to carry on business in
Canada. Examples include
Bank of America,
Capital One, Credit Suisse and
Deutsche Bank AG. Unlike the Schedule I and Schedule II banks, the
Schedule III banks are NOT incorporated under the Bank Act and they
operate in Canada, usually within the country's largest cities (being
Toronto, Montreal, Calgary and Vancouver), under certain restrictions
mentioned in the Act. As of October 2010, there were 23 such banks in
The bank regulator is the Office of the Superintendent of Financial
Institutions (best known as OSFI), whose authority stems from the Bank
Act. The financial groups are also governed by regulatory bodies (bank
regulators, securities regulators, insurance regulators, etc.) in each
country they operate in.