Evolution of the Banking Industry

Competition and Technology

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mishkin han chapter 10

Besides chartered banks, there are over 4000 financial institutions providing services, these include trust, mortgage loan companies, credit unions, caisses populaires, government saving institutions, insurance companies, pension funds, mutual funds and investment dealers
New technology and the internet have led to more competition and innovative banking in Canada
2001 changes in bank ownership laws have encouraged the establishment of new banks

As of 2005 there were 68 chartered banks in Canada and around 7500 in the United States
The presence of so many banks in the U.S. reflects past regulations that restricted the ability of these financial institutions to open branches
Many small U.S. banks stayed in existence because a large bank capable of driving them out of business was often restricted from opening a branch nearby
It was easier for a bank to open a branch in a foreign country than in another state in the U.S.

In the past, Canada’s financial services industry was regulated by institution (banks, securities, insurance, and real estate). This approach to regulation has been known as the four-pillar approach
Recent legislative changes allowed cross-ownership via subsidiaries between financial institutions
As a result, Canada’s traditional four pillars have now converged into a single financial services marketplace

The way is now open to consolidation in terms not only of the number of banking institutions, but also across financial service activities
Banking institutions will become not only larger, but increasingly complex organizations, engaging in the full gamut of financial service activities taking advantage of economies of scale and economies of scope
Mega-mergers like that of Citicorp and Travelers in the U.S. should become increasingly common

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