Date: Thu, 30 Apr 98 08:16:59 CDT
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Opposition Grows to Megabanks in Canada
By Paul Weinberg, IPS, 26 April 1998
TORONTO, Apr 26 (IPS) - The Canadian government is facing increasing pressure not to approve a series of mergers that would leave two megabanks controlling about 70 percent of the country's banking industry.
The Bank of Montreal and the Royal Bank revealed in January they planned to combine operations and, this month, the Toronto Dominion Bank and the Canadian Imperial Bank of Commerce announced similar merger plans. Immediately a loose collection of consumers, unions, small businesses and anti-poverty groups under the umbrella of the Canadian Community Reinvestment Coalition scrambled to press the government to scuttle both deals.
"All the evidence shows bigger banks charge higher fees and provide worse service," said coalition spokesman Duff Conacher. "In part, that's because they lay off thousands of employees and shut down branches."
The chairman of the remaining "big" bank in Canada, Scotiabank's Peter Godsoe, also opposing the proposed mergers said the result would be the disappearance of possibly 65,000 jobs. "Do I think that going from five to three (banks) is anti- competitive? Of course it is, Godsoe said. "It wouldn't be allowed in most countries; it would just be turned down out of hand."
The groups hostile to the takeovers all share a suspicion of the major banks because the bulk of their revenue these days comes from controversial service changes on all financial transactions.
Opposition to the bank mergers in Ottawa comes not just from predictable critics in the Reform and New Democratic parties in the House of Commons. It also includes members of Parliament (MPs), who are part of the ruling Liberal party caucus and represent either rural constituencies or low income urban areas, where the branch offices of the big banks are closing. In their place is the widespread use of automatic banking machines and electronic banking facilities.
But other Liberal supporters are assisting the merging banks in lobbying federal finance minister Paul Martin to rubberstamp their new arrangements, according to some media reports. "At a certain point, you need to accept the inevitable and make the best you can of it," Liberal party sources said.
One brokerage house connected to one of the merging banks on Bay Street, the centre of Canada's powerful financial community in downtown Toronto, even warned of a stock market crash if the mergers were scuttled. Billions of dollars in paper profit were apparently made by investors following the banks' announcements of their plans.
Not everyone on Bay Street takes this disaster scenario seriously, including finance minister Martin who is awaiting the findings of both a federal task force on banking and a separate Commons committee of MPs before giving a government decision on the merger issue. "There will be no mergers in the banking sector until we are convinced that is what is best for Canadians. And we will not be stampeded into making that decision," he said.
Alexa McDonough, leader of the small contingent of New Democrats in Ottawa, warns that the megabanks will be difficult to undo if Martin sits and waits for the advice, rather than act immediately and disallow them. But Ottawa economist Mario Seccareccia, suggests that the Canadian banks could merge their overseas operations while remaining separate in Canada, if Martin gives them a hard time.
With the deregulation of the financial services in the Canadian market and speculative capital flowing impeded across national borders abroad, banks are increasingly making their money out of their international transactions. "It is much more difficult to regulate their activities. We have no clue how much money they make in places like the Caribbean," McDonough said.
Others like Jim Stanford; the Halifax based economist for the Canadian AutoWorkers Union, counters that those banks "are still subject to the regulations" of the countries in which they operate. He has nothing against large banks because size can also make such institutions "more effectively run."
More worrying, however, is that the fact the banks are "not accountable" to governments. Stanford doubted that finance minister Paul Martin would call a halt to the two mergers, even, even though the Canadian banks have not done too badly from "their international wheeling and dealing - the assets of the five large banks have doubled in the last five years."
Meanwhile, Canada's co-op banking sector or credit unions, where one in three Canadians have their deposits, are eyeing the bank mergers with some glee, says Larry Gordon, vice-president of development for the Metro Credit Union in Toronto, which has 41,000 members. He sees an end to a period of stagnation, for credit unions, as the five large Canadian banks further abandon retail and consumer banking for the more lucrative higher end services such as mutual funds and international transactions.
Although they provide the full compliment of banking services found elsewhere, credit unions are managed by boards democratically elected by their members. This makes them more sensitive to the needs of consumers, in areas like small loans of 5,000 dollars or less, "which the big banks will not touch," says Gordon.
On the other hand, credit unions "are not in the business of making bad loans." Credit unions are more likely to maintain their branches in smaller rural communities and low income urban neighbourhoods than the banks because they are not under the pressure of shareholders focused on the quarterly return on their investments, adds Gordon.
Historically, credit unions were often set up on the basis of ethnic background, community or occupation in areas of Canada feeling neglected by the large Toronto and Montreal based financial institutions, such as the west, Quebec and the east coast. But in any expansion to meet the challenge of the banks and offer customers the same assortment of services, the danger lurks of credit unions also turning into remote and faceless institutions for consumers, said Ottawa economist Mario Seccareccia.
"In my own experience in Ottawa, the differences between them is minimal, " he said. (END/IPS/pw/mk/98)
[c] 1998, InterPress Third World News Agency (IPS)
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