Comment
Richer than you think
I don’t blame Scotiabank. It is responding to the incentives that Canada’s regulatory system has erected to protect the big six banks. These protections helped establish a solid and towering financial system, but they have done so at the cost of deteriorating service to communities and to their employees across this geographically vast country. Canada’s banks have lost track of their core mission.
Wellington is the latest example of the cost of an overly regulated banking system that has effectively choked out competition in this country.
Canada’s banking system has become a six-headed cartel— able and motivated to set its own terms at home, slash services, and extract higher fees. We can’t go anywhere else. The big six banks don’t need to compete for your business. There are better returns available beyond Canada’s borders.
The pensioner with a savings account is a quaint afterthought in the towers looming over Bay Street. It’s not the bank’s fault. We designed it this way. We did this. We’re proud of it.
We have become Dave Bowman, imploring HAL 9000 to open the pod bay doors in 2001: A Space Odyssey.
“I’m sorry, Dave, I’m afraid I can’t do that.”
The machine’s mission had become more important than Dave.
Have you ever wondered why a Starbucks exists in most Canadian towns (until recently) but no retail Bank of America branch does? A McDonald’s, but no M&T branch? KFC, but no Wells Fargo? Wal-Mart, but no Citibank branches? Plenty of Metro foodstores, but few BNP Paribas bank branches?
These are decisions we made. Restrictions we imposed. Rules we thought were prudent. Perhaps it is time we reconsidered.
Four decades ago, a handful of trust companies competed in the retail banking space alongside the big banks. Names like Canada Trust, Guaranty Trust, Central Trust, and Montreal Trust have all since been swallowed by the big six. The big got bigger using a regulatory system that was designed to protect them, to nurture them. Like Dave, we outsmarted ourselves.
The US, for all its faults, has 53 times more federally insured deposit-taking institutions than Canada (US ~4,500 v. 84 in Canada). We Canadians tend to look smugly across the border when the American system stumbles, as it did in 2009 and the Savings and Loan crisis in the 1980s. The Canadian financial system got by relatively unscathed.
But we failed to recognize that there were trade-offs. In our pursuit of stability, we settled for indifference. We traded poor service and higher costs for safety. We felt superior about our banks even as they treated us like crap.
So, okay, maybe we don’t want a woolly free-for-all of the American banking system, but neither should we tolerate the big banks giving the middle finger to Canadian communities. Perhaps we can find a better balance?
Scotiabank earned $2.5 billion in its last quarter. It’s a lot of money. Yet it is closing branches, cutting back services and shedding employees. Good for shareholders. It is using this money to buy back its shares—another big win for shareholders.
Five of Canada’s six highest-earning companies are banks. Collectively, the big six Canadian banks earned $57 billion last year. They are doing so well that they don’t need to worry about their domestic customers. They understand we have nowhere else to go.
Faithful readers know your correspondent is a devout market capitalist. But markets don’t work without competition. Canada’s banking oligopoly must be exposed to greater competition.
To do this, we must unleash foreign banks to set up deposit-taking branch networks in Canada. We must free up credit unions to do business beyond a single province. Wasn’t Mark Carney supposed to eliminate interprovincial trade barriers by now?
Most importantly, we must shred the calcified web of legal and regulatory barriers that stifle competition and innovation.
We must clear a path to enable the M&T Bank, VanCity, or the Servus Credit Union to seek opportunities to serve communities abandoned by the big six. I, for one, will happily move my banking to Caisse Desjardins if they choose to become part of our village.
For what it’s worth, Wellington is not the only location that Scotiabank is shuttering.
https://www.cbc.ca/news/canada/thunder-bay/bank-closures-nwo-9.6950933
“The mayor of Marathon, Ont., says he’s worried about the impact the pending closure of the town’s only-remaining brick-and-mortar bank branch will have on the community.
Scotiabank recently announced it would close its branches in Marathon and Red Lake next spring.”
It is a shame that the local bank is closing and it will be an inconvenience for many. Don’t be in too big of a hurry to embrace the entry of U.S. banks into the Canadian market. First consider where the profits of those banks go. Consider where their real head offices will be. Consider the state of that nation politically. Then consider that between 2001 and 2025 there were 570 bank failures in the United States of America. Be careful what you wish for…you might just get it, just not in the way you hope!
Agree totally that it is a shame that the Wellington bank is closing. A reasonable downsizing might have been to relocate a staffed kiosk to another venue in the town, much like what the President’s Choice Financial booths were like. The number of operations that cannot be done online is reducing to lower and lower levels, but having a human in person to deal with is still something very valuable, to any and all ages of people.
As far as US banks go, there are many reasons to keep them out, even if we were not on a war footing because of the declaration on the War of 2025. US Banks are not regulated to anywhere near the degree that Canadian banks are. And, profits of US organizations (banks and others) will always go to the US. And investment by US organizations, thanks to the War, are going to shift more and more from outside the US to inside the US. Canadians should invest in, and patronize, Canadian companies (banks included).
SM’s last statement is very true, not just for this topic either.