Chapter 8: Banks and Deposit-Taking Financial Institutions in Canada

Question 1

What Year was Banking Introduced? and by Whom and what?

Answer 1

1817
By a group of business men in Montreal awarded a charter by the British Government to open the first formal bank in Canada. Formed the Bank of Montreal

Question 2

What main City’s were awarded charters in the business of banking? And for what Reason?

Answer 2

Montreal, Halifax, Kingston, Toronto

Expand trade both within British North America and internationally. For shipping and commerce conduct

Question 3

How were banks owned and did they have individual clients?

Answer 3

involved relationships with customers that were exclusively businesses, not personal banking clients.
They did not have any individual clients, they do not require banking services and had little to no money.

Question 4

When did Canada become its own and when did The bank of Canada Open

Answer 4

British North America Act 1867

BofC 1935

Question 5

Why did the banking revolution start slow?

Answer 5

The economy was based upon agriculture, sparsely populated.

Question 6

How often could the Bank Act be changed (additions, amendments, and deletion)

Answer 6

10 years then reduced to 5 years and now is referred to as an “as needed” basis

Question 7

1984: 2 pillars to the Canadian Financial system?
1991: 2 remaining pillars?

Answer 7

1984: Investment Dealers & Stock Brokerage
1991: Trust services and Insurance

Question 8

The Banks Restriction/Limitation to Insurance?

Answer 8

Insurance is restricted to be sold through a Bank’s Branch

Question 9

Which banks tried to Merge and when? What was the outcome?

Answer 9

Jan 1998: RBC & BMO
April 1998: TD & CIBC

They were both declined

Question 10

Is Merging permitted through the Bank Act? Give 2 examples.

Answer 10

Yes it is.
Bank of Toronto and Dominion Bank = TD CANADA TRUST
Canadian Imperial Bank + Canadian Bank of Commerce = CIBC

Question 11

3 Types of Banking Structures

Answer 11

Schedule I (TD, CIBC, RBC, BMO)
Domestic Banks
Owned and operated as Canadian Businesses

Schedule II (Citibank, HSBC, Walmart Canada Bank)
Foreign Subsidies
100% Owned by Parent Companies

Schedule III (Capital One, Comerica)
Large concentration of Canadian Residents who are citizens or can trace their heritage to the Countries which Schedule III banks are based. Used for family who transfer and receive funds regularly

Question 12

Name 3 of the factors for the level of Sophistication in Canada

Answer 12

Financial Regulation
Government ensures financial safety, to depositors, and financial providers. Virtual one-stop-shop for financial needs.

Competitive Marketplace Activity
Adequate competition growth, alternative financial products, service. Non-restriction to only Canadian services

Innovative Products and Services
Online banking, internet access to financial products and services, broad product selection.`

Question 13

Even though mergers are permitted, why do they get declined?

Answer 13

Main reason is because of politics.

Question 14

4 Main Reasons Government is concerned with mergers

Answer 14

1. Reduce Competition and Increase Market Concentration
2. Selection and Access concerns of clients
3. Increased Cost and Fees to customers
4. Too much Financial Power

Question 15

What are Supporters and Critics of Mergers? and what is Canada opposed to the banks and mergers?

Answer 15

Supporters: Canadian banks need to increase in size to handle larger transactions and to generate larger economies of scale

Critics: Focus upon the politics involved. Concerned about negative political back-lack from voters and taxpayers believing it is unnecessary

Opposed to the banks having the ability in generating large profits.

Question 16

What do trustees do for their clients? And their main business?

Answer 16

to hold certain types of financial and non-financial assets for their clients.

Wills and Estate Administration

Question 17

Trust Company similarity with Banks?

Answer 17

Able to take deposits and later make loans

Question 18

What happened to trust companies and are there any left?

Answer 18

all 6 of those independent trust companies being bought by the Schedule I banks, there are no independent trust companies left in Canada.
Except for one Peace Hills Trust in Edmonton

Question 19

When did Trust and Mortgage companies come into Canada? What was mortgage’s purpose?

Answer 19

the mid 1800’s.
Enable their members to buy land, build homes, and finance farms. Mortgage financing products were providing service 100 years before the banks.

Question 20

What are the 3 Different Mortgage Structures?

Answer 20

Pure Mortgage
take money on deposit, or sell bonds and debentures that they use funds from to create individual mortgages

Mortgage Investment Corporations
investors deposit (pool) their capital and invest in a number of mortgages

Real Estate Investment Trust
receive funds (capital) from investors and invest that money into various forms of real estate that can create income streams for the invested clients

Question 21

What is Credit Unions / Caisses Populaires? And When Did it Open?

Answer 21

In 1900’s

• Made for Smaller Villages or towns that denied people access to banks
• The local residents agreed to pool their money and set up a caisses populaire where people could deposit their money and obtain loans
• Non-Profit Organization
• Profit would be distributed to its members/owners through dividends
• Owned by its members / depositors

Question 22

What is the purpose of Province of Ontario Savings Office (POSO)?

Answer 22

For smaller rural Ontario towns, where the population is too small for a bank to open a branch