Financial Institutions in Canada - An Overview

Canada’s major financial and banking center is Toronto, where most Canadian banks and many other financial institutions are headquartered. Canadian financial institutions operate under either federal or provincial regulation. In Canada, financial services are provided by both banks and non-bank financial institutions.

The Bank Act specifies the requirements for chartered banks to be established and operate. All banks operating in Canada are regulated federally by the Office of the Superintendent of Financial Institutions (OSFI), which also regulates a number of non-bank deposit-taking financial institutions such as trust and loan companies, cooperatives, insurance companies and some pension plans.

Three types of banks are permitted by the Bank Act. Schedule I banks include Canada’s largest widely-held (publicly-traded) banks. Of these, six (BMO, TD, RBC, Scotia, and CIBC, along with smaller National Bank) have the largest branch networks and greatest geographic coverage. They offer widely diversified services, either directly or through subsidiaries, including trust and custodial services, insurance, mutual funds and investment management, corporate and commercial banking, lending, investment banking, brokerage services, and retail banking. There are also a few smaller Schedule I banks associated with retail merchandising operations, such as Canadian Tire Bank.

Schedule II banks are subsidiaries of international banks, such as Citibank Canada and Bank of Tokyo-Mitsubishi (Canada). These banks are authorized to accept deposits and often focus on a particular market or service, usually in the corporate or commercial market. Schedule III banks are foreign bank branches of international banks, such as ABN Amro Bank and WestLB. They are permitted to undertake more restricted activities under the rules of the Bank Act. As of September 2005, there were a total of 63 banks operating in Canada.

Canadian credit unions, and caisses populaires in Quebec, are regulated provincially. Many of these institutions, though not all, are small and operate in specific geographical regions. They may offer specialized services for their market or a broader array of services for a particular marketplace. Other financial institutions operating in Canada include provincially-regulated trust and loan companies. Government savings organizations, such as ATB Financial in Alberta, are also part of the system.

Deposit-taking financial institutions are members of the Canadian Payments Association (CPA). The CPA operates the national clearing and settlement system and promotes its efficiency, safety, and soundness. Operating expenses are funded by member financial institutions based on their usage of the clearing system the previous year. There are more than 100 CPA members, including the Bank of Canada, chartered banks, trust and loan companies, central credit unions and caisses populaires, and other deposit-taking institutions such as independent credit unions.

One of the major recent changes in Canadian financial services has been the development of specialized companies to provide some traditional bank services. Major Canadian banks and credit unions outsource processing of paper payments such as cheque clearing and remittance processing to companies such as Intria and Symcor. Intria started as a joint venture between CIBC and Fiserv and now processes more than 580 million cheques per year. Symcor, a joint venture between BMO Financial Group, RBC Financial, TD Bank, processes more than 2 billion cheques per year. Central credit unions provide similar processing services for credit unions. Outsourcing permits financial institutions to provide high-volume, low margin services more effectively.

Of all the financial institutions operating in Canada, the banking sector is the largest. In 2004, banks as a sector accounted for more than 239,000 employees. However, non-bank financial institutions such as credit unions are critical to the delivery of financial services across a country with a diverse cultural and geographic profile and, as such, a key component of the Canadian financial institution landscape.