Big Five is the name colloquially given to the five largest banks that dominate the banking industry of Canada. The five banks are operationally headquartered in Toronto, Ontario. They are all classified as Schedule I banks that are domestic banks operating in Canada under government charter. The banks' shares are widely held, with any entity allowed to hold a maximum of twenty percent.[1]
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The Big Five banks, listed in order of market capitalization on the Toronto Stock Exchange as of December 31, 2011, with their current corporate brand names and corporate profiles according to their latest annual report, all monetary amounts are in billions of Canadian dollars, are:
| Official names | Bank brand | Headquarters | Assets | Deposits | Capitalization | Branches (Canada only) |
Employees (Full-time equivalent) |
Reference |
|---|---|---|---|---|---|---|---|---|
| Royal Bank of Canada Banque Royale du Canada |
RBC Royal Bank RBC Banque Royale |
Montreal (legal) Toronto (operational) |
$751.7 | $444.2 | $74.8 | 1,338 | 68,480 | [2] |
| Toronto-Dominion Bank Banque Toronto-Dominion |
TD Canada Trust | Toronto | $686.4 | $481.1 | $68.9 | 1,150 | 65,930 | [3][4] |
| Bank of Nova Scotia Banque de Nouvelle-Écosse |
Scotiabank Banque Scotia |
Toronto (operational) Halifax (domicile) |
$575.3 | $396.4 | $55.4 | 1,030 | 75,362 | [5] |
| Bank of Montreal Banque de Montréal |
BMO Bank of Montreal BMO Banque de Montréal |
Montreal (legal) Toronto (operational) |
$477.4 | $302.9 | $35.8 | 920 | 47,180 | [6] |
| Canadian Imperial Bank of Commerce Banque Canadienne Impériale de Commerce |
CIBC | Toronto | $353.7 | $255.4 | $29.6 | ~1,100 | 42,239 | [7] |
In modern history, Royal Bank has always been the largest by a significant margin. Up to the late 1990s, CIBC was the second largest, followed by Bank of Montreal, Scotiabank, and TD Bank. During the late 1990s and beyond, this ranking changed due to several reorganizations. Royal Bank acquired Royal Trust, then the second-largest trust in Canada, in 1993, while Scotiabank purchased National Trust in 1997. As Scotiabank found no merger partners among the other banks in the big five group, it instead expanded its international operations and passed the Bank of Montreal in size. TD Bank merged with Canada Trust, which was for a long time the largest trust in Canada, thus vaulting TD temporarily into the number two spot. While there were no major changes to Bank of Montreal, CIBC's unsuccessful foray into the US market led it to shed its assets there, dropping it to the number five spot.
All monetary amounts are in billions C$
| Official names | Headquarters | Assets | Deposits | Capitalization | Branches (Canada only) |
Employees (Full-time equivalent) |
Reference |
|---|---|---|---|---|---|---|---|
| National Bank of Canada Banque Nationale du Canada |
Montreal | $145.3 | $81.8 | $11.6 | 442 | 18,322 | [8] |
| HSBC Bank Canada Banque HSBC Canada |
Vancouver | $71.3 | $50.2 | 145 | 6000 | [9] | |
| Laurentian Bank of Canada Banque Laurentienne du Canada |
Montreal | $23.8 | $19.7 | $1.1 | 157 | 3,643 | [10] |
| Canadian Western Bank | Edmonton | $12.7 | $10.8 | $1.9 | 39 | 1,716 | [11] |
In 1998, the Bank of Montreal proposed a merger with Royal Bank around the same time that CIBC proposed to combine with the Toronto-Dominion Bank. The banks argued that these mergers would enable them to compete globally with other financial institutions.
This would have left Canada with only three major national banks. Thus, the mergers were reviewed by the Competition Bureau of Canada. The Competition Bureau declared that negative effects (such as higher user fees and local branch closures) from the mergers would far outweigh the benefits of allowing the mergers. Ultimately, it was then Finance Minister Paul Martin who rejected both proposed mergers.[12] The issue since has not been revisited by succeeding Finance Ministers.
The strength of the Canadian dollar and relative weakness of U.S. bank prices have led commentators to suggest that the big five banks could consider an expansion into the United States. The weakness of the Canadian dollar, as well as high U.S. bank stock prices, were commonly cited as obstacles to purchasing assets south of the border.
Due to the recent 2007 Subprime mortgage financial crisis, Royal Bank of Canada has now eclipsed Morgan Stanley in terms of market valuation. According to figures compiled by a recent Bloomberg report, investors today are willing to pay about $2.60 for every dollar of book value at a Canadian bank, compared with $1.70 in the United States. That ratio is about the reverse of where it stood in late 1999.
The last time the U.S. financial markets were weak, many Canadian bank CEOs were criticized for not making a more concerted buying effort. Some believed that these CEOs preferred to wait for Ottawa to bless domestic mergers before expanding into the US. The federal government ended up refusing to allow the mergers, and is unlikely to do so now. Analysts also pointed out that Canadian banks have much stronger balance sheets today than they did 10 or 15 years ago, putting them in an even better position to be aggressive.[13]
In October 2007, TD purchased Commerce Bancorp, a medium sized US bank with a strong branch network in the middle Atlantic and Florida. As of March 2008, their stated plan was to merge Commerce with their existing TD Banknorth subsidiary, calling the new bank TD Commerce Bank.[14] However, the name was challenged by a "Commerce Bank" in New England. As a result, TD renamed its US banks TD Bank at end of 2009. [15] TD is the sixth-largest bank by branch network in North America, after JPMorgan, Bank of America, Wells Fargo, PNC, and US Bank.
The new framework includes revised ownership rules for banks and a new size-based ownership regime. Under the previous framework, a distinction was drawn between Schedule I and Schedule II banks (see Annex 1 for a list of these banks). Shares of Schedule I banks were required to be widely held, with no single shareholder or group of shareholders holding more than 10 per cent of any class of shares, while Schedule II banks could be owned by eligible Canadian or foreign financial institutions.
Under the new legislation an individual investor will now be permitted to own up to 20 per cent of any class of voting shares of a widely held bank and up to 30 per cent of any class of non-voting shares, subject only to a “fit and proper” test designed to evaluate the applicant’s character and suitability. This will allow widely held banks to enter into strategic alliances and joint ventures involving significant share exchanges. At the same time, the Bank Act will continue to prohibit control of a large financial institution by any single shareholder or group of shareholders. The Government has signalled its intention to issue guidelines that will clarify for investors and institutions the factual criteria and policy objectives to be taken into consideration in assessing control. The Government will be developing these guidelines in consultation with representatives of financial institutions and the broader investment community.
The new framework also enables banks to organize under a regulated holding-company structure that provides them with greater flexibility to compete with large specialized or unregulated firms. Both holding companies and banks structured along the traditional parent-subsidiary model are permitted to have a broader range of investments than under the previous regime.
Furthermore, the previous regime of Schedule I and Schedule II banks is now replaced by a new size-based ownership regime under which:
The new size-based ownership regime also allows for the creation of community-based banks with services tailored to the needs of a specific clientele. These banks will still be able to compete with the major banks in local or regional markets. The new regime also allows commercial enterprises (for example, those with a significant retail presence) to own a bank.
To encourage competition, the legislation also reduces the minimum capital requirement to start a bank from $10 million to $5 million.
In support of these various initiatives, the policy framework also contains provisions to ensure that financial institutions continue to manage their risks prudently. To this end, the Superintendent of Financial Institutions has been given additional supervisory powers to deal with institutions that do not meet certain supervisory or regulatory requirements. These include the power to remove directors and senior officers of a bank in instances of misconduct, and the power to administer financial penalties against institutions and individuals that do not comply with undertakings or violate the legislation and regulations governing financial institutions.
The framework also includes merger review guidelines that outline a formal and transparent review process for merger proposals between banks with equity in excess of $5 billion. This new process consists of a review of the merger proposal by the Competition Bureau, the Office of the Superintendent of Financial Institutions and the Department of Finance, and of a full public review by the House of Commons Standing Committee on Finance and the Standing Senate Committee on Banking, Trade and Commerce.
Bill C-8 also contains consumer protection measures as well as measures to ensure that the regulatory environment responds to the evolution of the sector in today’s rapidly changing marketplace. The Financial Consumer Agency of Canada will be established to enforce the consumer-oriented provisions of the federal financial institution statutes, to monitor the industry’s self-regulatory initiatives designed to protect the interests of consumers and small businesses, to promote consumer awareness and to respond to general consumer inquiries. This will consolidate and strengthen existing oversight activities in a dedicated new agency.
A new Canadian Financial Services Ombudsman was also established to handle consumer and small business complaints related to dealings with financial institutions. This independent body operates at arm’s-length from government and the financial sector, and a majority of the members of its board of directors are from outside the financial services sector. This organization eventually evolved to become the Ombudsman for Banking Services and Investments (OBSI).
Additional consumer protection measures include better access to basic financial services, the provision of low-cost accounts, notice provisions for branch closures, and a broadening of the existing Bank Act provision on coercive tied selling. Moreover, federal financial institutions with equity in excess of $1 billion will be required to provide annual public accountability statements that describe their contributions to the Canadian economy and society. [16]