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        THE "AMERICANISATION" OF CANADA'S BANKING SYSTEM

        by

        Michel Chossudovsky

Professor of Economics, University of Ottawa, author of The Globalisation
of Poverty, Impacts of IMF and World Bank Reforms, Third World Network,
Penang and Zed Books, London, 1997. (The book can be ordered from
[log in to unmask])

Copyright by Michel Chossudovsky Ottawa 1998. All rights reserved. To
publish or reproduce this text, contact the author at fax: 1-514-4256224,
email: [log in to unmask]

OTTAWA- A Liberal task force on financial services recommended (November
4, 1998) to Finance Minister Paul Martin to turn down the proposed bank
mergers. The latter would haver led to the "Americanisation" of Canada's
banking system. Two mega-banks, Canada's "Big Two" (CIBC-TD and
Royal-Montreal) would control more than 70 percent of the nation's bank
assets, loans and deposits. The "Big Two" have already established
themselves (through their US based affiliates) as bona fide American banks
confortably positioned in the US financial landscape. They have close ties
to Wall Street and have offices scattered in the numerous offshore havens
where they offer wealthy clients "discrete and personalized service" for
the establishment of "tax efficient" accounts. Wood Gundy Securities
Corp., CIBC's brokerage firm has recently acquired the New York based
investment bank Oppenheimer and Co. Inc. The latter specialises (on behalf
of CIBC) in lucrative ventures in the offshore havens as well as in high
risk hedge funds in the former Soviet Union.

Royal Bank CEO John Cleghorn, stated triumphantly in July 1998 that "he
would use Bank of Montreal's Chicago-based Harris Bank subsidiary as the
launch pad for an expansion in the United States..I [Cleghorn] would think
on the wealth management side you're clearly talking about acquisitions
because we've got to build a stronger base of capability there [the US],
especially in investment management and mutual funds,"(Reuters dispatch,
Royal Bank CEO targets U.S. expansion, July 17, 1998). In return for their
admittance to the US market, the Canadian banking system would be thrown
open to foreign competition. "The Big Two" will unselfishly share the
spoils with their Wall Street counterparts: "Canadian banks [meaning the
"Big Two"] welcome unfettered competition as long as mergers among the
country's largest banks are allowed"(Ibid). The large Wall Street
commercial banks and brokerage houses including Citibank, Chase Manhattan,
J.P. Morgan, and others would eventually come to dominate a large share of
the Canadian financial services industry.

"Americanisation" of Canadian Banks

Rather than "enhancing competitiveness" as claimed by the MacKay Task
Force on the Future of the Canadian Financial Services Sector, the mergers
combined with an "open door" to foreign financial institutions would lead
to the rapid "Americanisation" of the Canadian banking system. Canadian
and American banks (and brokerage houses) would eventually become
indistinguishable. The "Big Two" already consider themselves as
North-American banks; the smaller chartered banks as well as the Credit
Unions would eventually be edged out or swallowed up, more than 20,000
jobs in the banking industry would be lost. The mergers would dramatically
affect access to loanable funds particularly by small and medium sized
enterprises. According to Bank of Nova Scotia's CEO, Peter Godsoe "one
third of [Canada's] highly successful [banking] system will either change
significantly or disappear completely... [Two mega-banks] would have an
overwhelming dominance... [with] a level of concentration without
precedent, and one that would be considered unacceptable in any other
country of the world." (Financial Post, Toronto, May 27, 1998)

By-passing the Democratic Process

Finance Minister Paul Martin is anxious to enforce the "Americanisation"
of the Canadian banking system without consulting Canadians. An executive
decision on behalf of the "Big Two" and their Wall Street counterparts, to
authorise the bank mergers (alongside the deregulation of the financial
services industry) would blatantly violate Article 91 of the Constitution.
The latter stipulates unequivocally that "the exclusive Legislative
Authority of the Parliament of Canada extends to (...) the borrowing of
money on the Public credit, (...) Currency and Coinage, Banking,
Incorporation of Banks and the Issue of Paper Money, Savings Banks..."
(Canadian Constitution, section VI Distribution of Legislative Powers,
art. 91).

National sovereignty

The mergers combined with financial deregulation would transform Canada
and its provinces. With Canadian banks fully integrated into the US
financial landscape, Canada would no longer constitute a separate economic
and financial entity. Canada as a nation would be transformed. The process
initiated under NAFTA in the areas of trade and investment, would reach
its fruition: monetary policy (implying the command through money creation
over productive resources including the financing of government spending)
would eventually be tranferred to the US Federal Reserve System leading to
the demise of the Bank of Canada or its transformation into a regional
subsidiary of the US Federal reserve system. At the same token, this would
signify the privatisation of monetary policy, --ie. the federal reserve
banks although operating as State banks on behalf of the US Treasury are
in fact controlled by private commercial banks which are their
stock-holders.

Money creation is the basis of economic and political sovereignty. If the
bank reforms were to go ahead, this would affect the foundations of the
Canadian monetary system. In the words of William L. McKenzie King: "Once
a nation parts with control of its currency and credit, it matters not who
makes that nation's law. Until the control of the issue of currency and
credit is restored to government and recognised as its most conspicuous
and sacred responsibility, all talk of the sovereignty of Parliament and
of democracy is idle and futile". (Radio Address, 1933).

The recommendations of the Liberal task force do not signify that the bank
merger proposal is dead. The banks have not given up the battle: CIBC and
TD have stated that "while it is a setback, the game is not over". It is
also important to make sure that the mergers are not implemented in a de
facto fashion through the back door, by bypassing Legislative approval.