[asia-apec 862] "Americanisation" of Canada's Banking System

[BAYAN]

<excerpt>Date: Thu, 05 Nov 1998 09:34:05 -0500

From: Michel  Chossudovsky <<chossudovsky at sprint.ca>


<bold>

THE "AMERICANISATION" OF CANADA'S BANKING SYSTEM


by 


Michel Chossudovsky


</bold>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 twn at igc.org)  


Copyright by Michel Chossudovsky Ottawa 1998. All rights reserved. To
publish or reproduce this text, contact the author at fax: 1-514-4256224,
email: chossudovsky at sprint.ca  


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 have led to the "Americanisation" of Canada's
banking system. Under the merger proposal, 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 tax havens. 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 high risk hedge funds in the former Soviet Union. 


Royal Bank CEO John Cleghorn, stated triumphantly in July 1998 that 
"<italic>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,</italic>"(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. 


<bold>"Americanisation" of Canadian Banks


</bold>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 "<italic>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." </italic>(Financial
Post, Toronto, May 27, 1998) 


<bold>By-passing the Democratic Process

</bold>

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).  


<bold>National Sovereignty


</bold>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:
"<italic>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"</italic>. (Radio
Address, 1933).


The recommendation of the Liberal task force on financial services does
not signify that the bank merger proposal is dead. The banks have not
given up the battle: CIBC and TD have stated that "<italic>while it is  a
setback, the game is not over</italic>". 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. 


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