284 PA R T I I I Financial Institutions Medium-sized banks (and bank holding companies) with shareholders equity between $1 billion and $5 billion can be closely held provided that there is a 35% public float (that is, they could have a single shareholder own up to 65% of their shares) Large banks (and bank holding companies), those with shareholders equity in excess of $5 billion, are required to be widely held The new ownership regime, together with other provisions in the legislation, such as the lowering of the capital needed to create a bank from $10 million to $5 million and the allowance of domestic and foreign commercial enterprises (such as department stores and grocery chains) to establish small and mediumsized banks, will fundamentally change Canada s financial sector The CP Act and Access to the Payments and Clearance System Before the 2001 financial sector legislation, membership in the Canadian Payments Association (CPA), a nonprofit organization formed in 1980 by an Act of Parliament to operate Canada s payments systems, was limited to the Bank of Canada and the deposit-taking financial institutions chartered banks, trust and mortgage loan companies, and credit unions and caisses populaires The 2001 legislation introduced some important changes for the Canadian Payments Association and also renamed the Canadian Payments Association Act to Canadian Payments Act (CP Act) In particular, the CP Act extends eligibility for membership in the Canadian Payments Association and therefore access to Canada s two domestic payments systems, the Large Value Transfer System (LVTS) and the Automated Clearing Settlement System (ACSS), both to be discussed in detail in Chapter 17 to non deposit-taking financial institutions, such as life insurance companies, securities dealers, and money market mutual funds This regulatory change will significantly affect Canada s financial services sector, since it will allow these organizations to provide bank-like services, such as chequing accounts and debit cards, without being banks, thereby directly competing with banks, trust and mortgage loan companies, and credit unions and caisses populaires Expanding access to the payments and clearance system, by allowing non deposit-taking financial institutions to participate, will further accelerate the process of the blurring of distinction between deposit-taking and non deposit-taking financial institutions As already noted, this process started in 1987, when securities dealers were allowed to own banks, and was reinforced by the 1992 federal financial reforms that permitted cross-ownership of financial institutions Merger Review The government has also issued a statement establishing a process for reviewing mergers involving large banks banks like the Bank of Montreal and CIBC with Policy shareholder equity in excess of $5 billion By doing so, the government acknowledges that mergers are a legitimate business option that should be available to Canadian bank financial groups The bank merger review process, however, unlike those in other countries such as the United States and the United Kingdom, is political, having Parliament directly involved in it Under the new merger review policy, the merger partners are required to submit a public interest impact assessment (PIIA), covering various effects of the merger, such as the impact on the structure and competition of the banking industry, branch closures, and job losses The merger proposal would then be submitted to the House of Commons Standing Committee on Finance and the Standing Senate Committee on Banking, Trade, and Commerce for consideration and public hearings Each of these committees will report to the Minister of Finance, who would make these reports public, together with a report from the Competition Bureau on the competitive aspects of the proposed merger and a report from the