Canada urged to ease banking sector restrictions

Fri Jan 11, 2008 6:17pm EST
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TORONTO (Reuters) - Canada should end its prohibition on mergers between large banks, and between banks and insurance companies, Royal Bank of Canada (RY.TO: Quote) said in a submission sent to a federal policy-review panel on Friday.

Royal, the country's largest bank, said that "changes to the merger rules would create the opportunity for banks to better compete on the global stage."

It also recommended scrapping the so-called "widely held rule," which restricts ownership in Canada's big banks and life insurance companies to no more than 20 percent.

But the bank said that any acquisition of a control position in a Canadian financial institutions should be approved by the federal finance minister on a case-by-case basis.

"In our view, this approach will ensure that the current arbitrary ownership restrictions will be replaced by a more flexible approach that can balance public policy considerations against the benefits of consolidation and expansion of business opportunities," Royal said.

The Conservative government created the review panel last summer to get feedback on competition and investment policies and what changes should be made.

In the bank sector, mergers have been off the table since 1998, when the then-Liberal government quashed two separate proposals.

It will be important for any new policies to be clear to potential participants, so that they will understand how transactions are to be reviewed and approved, Royal Bank said in its submission.

"In our view, the existing review process overemphasizes consumer issues at the expense of considerations relating to the global competitiveness of Canadian financial institutions," Royal said.   Continued...