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1. Introduction
• Context: Many internal and external factors putting pressure for changes
• Objective: Providing a quick overview of the present situation and current trends
• Sections: Legal, Economic, Trends
Legal jurisdiction for various types of financial
institutions
• Government Federal Provincial• Chartered banks Yes No• Trust companies Yes Yes• Credit unions No Yes• Insurance co. Yes Yes• Securities & exch. No Yes
Federal Regulators and Supervisors of F.I.
• Department of Finance of Canada• Bank of Canada• Office of the Superintendant of
Financial Institutions (OSFI)• Canada Deposit Insurance
Corporation (CDIC)• Bank Ombudsman
Majors restrictions for banks
• Activities– Cannot lease automobiles– Cannot sell insurance in branches
• Ownership– Cannot be owned by a holding– No shareholder can have more than 10%– Can only own financial affiliates
McKinsey Report
Reference:http://finservtaskforce.fin.gc.ca/research/research.htm
Exhibits 2-9 to 2-16, 2-24, 2-27
Value of share trading for 1998 (millions of USD)
• NYSE 7 317 948 52,9%
• Nasdaq 5 518 946 39,9%
• Toronto 331 847 2,4%
• Chicago 298 912 2,2%
• Amex 287 928 2,1%
• Montreal 37 506 0,3%
• Mexico 31 192 0,2%
• Vancouver 2 573 0,0%
• Total 13 826 856 100,0%
Reform process
• The task force on the future of the Canadian financial services sector (Mackay report) September 1998
• Feedback and comments Fall 1998
• Policy paper from the Department of finance to be released this month of June
Banks
• Two major merger proposals turned down (RBC-BMO and CIBC-TD) dec 1998
• Expected goverment position– No new activities (leasing or insurance)– Relaxed ownership rules
• Increase of the 10% ceiling to 20%
• Upstream financial holding co. to be allowed
Life Insurance Co.
• Four major Life Ins. Co. are currently in a process of demutualization:– Mkt share– Sun Life Ass. Co. (#2) 12%– Manufacturers Life Ins. Co(#3) 11%– Mutual Life Ass. Co (#5) 10%– Canada Life Ass. Co. (#6)
9.5%
Other federaly regulated F.I.
• Insurance co., Trust co and Stock brokers to be allowed to participate directly in the payment system
Foreign access to Can. Fin. Sys.
• Government has recently abolished the requirement that foreign banks have to create a Canadian affiliate to operate in Canada. They may now simply operate as branches of the mother company.
Canada Deposit Insurance Corp.
• CDIC has now (Spring 1999) put in place a system of premium that is risk-adjusted.
• Premium vary from 1/6 to 1/3 of 1% of deposits
Stock exchanges
• The four Canadian stock exchanges have agreed on a major reorganization plan– Toronto to trade senior equities– Montreal to specialize in derivatives– Vancouver and Alberta to merge and trade
junior equities
• Plan is still to be approved by regulators
Characteristics of the Canadian Financial System
It used to be:
• protected
• bank dominated
• concentrated
• secure and stable
Nature of current evolution
• Protection is being lifted both by NAFTA and commitments to WTO
• Non bank institutions will be favored by the coming reform
• Stock exchanges will go through a major reorganization to survive against US competition