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CHAPTER 11 Banking Industry: Structure and Competition 285 Office of the Superintendent of Financial Institutions Canada on the prudential aspects of the proposed merger The Minister of Finance will decide whether the proposed merger will be allowed to proceed The government has also indicated that it will not allow mergers between large banks and large demutualized life insurance companies such as Manulife and Sun Life We would note, however, that in other countries such as Australia, Germany, the Netherlands, Switzerland, the United Kingdom, and the United States, mergers of banks, insurance companies, and other financial services providers are not prohibited The National Financial Services OmbudService Another recent significant achievement is the creation of a National Financial Services OmbudService (NFSO) that began operations on July 1, 2002 This service has been created, with the support of the federal and provincial governments, by the banking sector (through the Canadian Bankers Association), the insurance sector (through the Insurance Bureau of Canada and the Canadian Life and Health Association of Canada), and the securities sector (through the Investment Dealers Association of Canada, the Mutual Funds Dealers Association, and the Investment Funds Institute of Canada) The NFSO provides Canadian consumers and small businesses access to disputeresolution services regarding their dealings with financial institutions The creation of the NFSO has been viewed as a first step towards building a national regulatory system and eliminating the overlaps among the many federal, provincial, and territorial departments and agencies that currently regulate the different industries of the Canadian financial services sector Implications for the Canadian Banking Industry A bank holding company structure (as an alternative to the current bank-as-parent structure), new ownership rules, expanded permitted investments, expanded access to the payments and clearance system, and a transparent merger review policy, offer new opportunities for strategic alliances and joint ventures that have the potential to reshape the Canadian financial services marketplace These developments, together with new information technologies, make possible new financial products and services and a more vibrant and dynamic market for financial services As we have seen, the 1991 federal financial reforms have stimulated consolidation of the Canadian banking industry The financial consolidation process will be even further sped up by the 2001 legislation, because the way is now open to both mergers and acquisitions, and strategic alliances, partnerships, and joint ventures As already noted, bank financial groups will become not only larger, but also increasingly complex organizations, engaging in a full gamut of financial activities S U M M A RY The history of banking in Canada has left us with a small number of banks chartered by the federal government Multiple agencies regulate chartered banks: the Office of the Superintendent of Financial Institutions (OSFI), the Bank of Canada, and the Canada Deposit Insurance Corporation (CDIC) The Big Six (the Royal Bank of Canada, Canadian Imperial Bank of Commerce, Bank of Montreal, Scotiabank, TD Canada Trust, and the National Bank of Canada) together with the Desjardins Institutions dominate the deposit-taking industry in Canada In the United States there is a dual banking system, with commercial banks chartered by the states and the federal government Restrictive state-branching regulations that prohibited branching across state lines led to a large number of small commercial banks in the United States The large number of commercial banks in the United States reflects the past lack of competition, not the presence of vigorous competition A change in the economic environment will stimulate financial institutions to search for financial innovations Changes in demand conditions, especially the rise in